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Caught Up in the Facebook Frenzy? 5 Hotter Tech Stocks

Aniruddha Ganguly
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Caught Up in the Facebook Frenzy? 5 Hotter Tech Stocks

Facebook (FB) faces multiple headwinds that make it an unsuitable investment pick. In its place, five technology stocks with significant prospects draw attention.

Facebook FB had a rough first-half 2018, fettered by a string of screw-ups related to user data safety, platform security, data sharing and handling procedures along with proliferation of fake news, terrorism-related content and political propaganda.

These factors have considerably constricted Facebook’s user base as second-quarter 2018 saw the worldwide addition of only 22 million users — the lowest sequential growth since early 2011.

Moreover, the cataclysmic near-term guidance dealt a severe blow to investor confidence. The social media giant now expects revenue growth to slow through at least 2019-end.

Facebook saw its worst ever one-day drop of nearly 19% (the largest one-day drop in the history of the American stock market) on Jul 25, wiping out nearly $120 billion of investor wealth.

This Zacks Rank #4 (Sell) is currently the worst-performing stock in the FAANG group, having underperformed the S&P 500 on a year-to-date basis as well.




 

What’s Acting Against the Stock?

Since the release of second-quarter 2018 results (Jul 25), Facebook’s stock has lost 17.3% reflecting concerns about the company’s prospects.

The company’s heavy spending in areas like safety & security, Augmented Reality/Virtual Reality (AR/VR), marketing, and content acquisition is expected to hurt profits.

The company apprehends a deceleration in revenue growth rate in the second half of 2018. Expenses are expected to rise at a faster rate as compared to revenues in 2019. Operating margin is now projected in the mid-30s range.

Moreover, slower Stories and Messenger monetization is likely to dent Facebook’s top line in the near term. Additionally, competition from Snapchat, Twitter and Google over advertising has been intensifying.

Facebook cuts a sorry figure on the earnings front as well. In the last 30 days, 19 analysts have revised their earnings estimates downward for 2018. As a result, the Zacks Consensus Estimate has moved south to the current $7.08.

Turnaround Efforts to Take Time

Facebook’s initiatives related to improving ad transparency, removal of fake accounts and putting a check on fake news are prudent ways to ensure healthy growth over the long haul.

Further, the company’s focus on building and nurturing ‘community’ is a key catalyst. Facebook plans to launch products to improve interaction and engagement at its core platform.

Instagram has significant growth opportunities, driven by rapid proliferation of Stories, Direct and IGTV. Facebook’s strategy of developing Stories to support ads is expected to drive growth. The company is also well poised to benefit from the growing demand for videos across its platform.

While these measures seem impressive at first glance, it could be a while before they start paying off. So for now, it is advisable to steer clear of Facebook.

Our Picks

Though Facebook's prospects may not appear appealing at the moment, there are some technology stocks that hold promise.

Zacks’ proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are five stocks that have this favorable combination.

Micron Technology MU — Idaho-based Micron manufactures and markets Dynamic Random Access Memory, NAND flash memory, CMOS image sensors, other semiconductor components and memory modules used in leading-edge computing, consumer, networking and mobile products. The company sports a Zacks Rank #1 and a VGM Score of A.

Micron has beaten the Zacks Consensus Estimate in all of the trailing four quarters, the average positive surprise being 5.91%. The Zacks Consensus Estimate for fiscal 2018 earnings is currently pegged at $11.72, reflecting year-over-year growth of 136.3%.

Micron Technology, Inc. Price and Consensus

 

Micron Technology, Inc. Price and Consensus | Micron Technology, Inc. Quote

AVX Corporation AVX — Fountain Inn, SC-based AVX is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and related products. The company sports a Zacks Rank #1 and a VGM Score of A.

The company has beaten the Zacks Consensus Estimate in two of the trailing four quarters, the average positive surprise being 26.39%. The Zacks Consensus Estimate for 2018 earnings has jumped 72% to $1.29 over the last 30 days, reflecting a year-over-year rise of 61.3%.

AVX Corporation Price and Consensus

 

AVX Corporation Price and Consensus | AVX Corporation Quote

Unisys Corporation UIS — Based in Blue Bell, PA, Unisys specializes in securing client operations, increasing efficiency of data centers, enhancing support to end users and constituents and modernizing enterprise applications.

Unisys has beaten the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 70.30%. The Zacks Consensus Estimate for 2018 earnings has increased 13.9% to $1.88, reflecting year-over-year growth of 246.9%.

Unisys Corporation Price and Consensus

 

Unisys Corporation Price and Consensus | Unisys Corporation Quote

United States Cellular Corporation USM — Based in Chicago, IL, U.S. Cellular is the sixth-largest wireless telecom operator in the United States in terms of customer count, with 4.93 million subscribers in five geographic markets covering 23 states. The company has a Zacks Rank #1 and a VGM Score of B.

The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 303.6%. The Zacks Consensus Estimate for 2018 earnings has jumped 60.9% to $1.11 reflecting year-over-year growth of 91.4%.

United States Cellular Corporation Price and Consensus

 

United States Cellular Corporation Price and Consensus | United States Cellular Corporation Quote

Cypress Semiconductor CY — San Jose, CA-based Cypress is an original equipment manufacturer of digital and mixed-signal integrated circuits. The company has a Zacks Rank #2 and a VGM Score of A.

The company has beaten the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 22.72%. The Zacks Consensus Estimate for 2018 earnings has risen 7.2% to $1.34, reflecting a year-over-year increase of 50.6%.

Cypress Semiconductor Corporation Price and Consensus

 

Cypress Semiconductor Corporation Price and Consensus | Cypress Semiconductor Corporation Quote

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