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Nasdaq Rally Likely to Continue Over Long Term: 5 Top Picks

Nalak Das

The Nasdaq Composite —  one of the three major stock indexes of Wall Street —  is rallying again in 2020 after finishing an impressive 2019. On Jan 8, the tech-laden index closed at a fresh all-time high. At this stage, the question is whether the teach-heavy index can maintain its momentum.

Nasdaq Starts 2020 From Where it Ends 2019

In line with Wall Street’s dream run in 2019, the Nasdaq Composite finished a fabulous last year, rallying 35.2%. This was a complete turnaround of the index after a pathetic 2018, when it plummeted 3.9%, recording its worst-ever yearly performance since 2008. Let us look at some major achievements of the Nasdaq Composite in 2019.

In 2018, Nasdaq reached its highest level of 8,109.69 on Aug 29.. But after that, the index started retreating owing to heightening trade conflict between the United States and China and an extremely hawkish Fed. The tech-laden index managed to surpass that barrier only on Apr 23, 2019, when it closed at 8,120.82. Notably, this was the index’s first closing above 8,000 — a key technical threshold — for the first time after Oct 3, 2018.

Since then, the Nasdaq Composite had a dream run barring some minor fluctuations. The tech-laden index reached a major psychological barrier of 9,000 on Dec 27, 2019. This means the index completed its journey from 8,000 to 9,000 in just eight months.

Moreover, the index has already comfortably crossed the 9,000 level and closed at 9.129.24 on Jan 8. In the first five trading days of this year, the index gained nearly 1.8% despite intensification of U.S.-Iran geopolitical tussles.

Major Catalysts of Nasdaq Composite

Since the Nasdaq Composite is a tech-heavy index, its performance is directly related to the technology sector. Tech stocks had an impressive bull run in 2019 after a pathetic 2018 buoyed by positive developments on the trade conflict front, a dovish monetary stance adopted by the Fed and a stable U.S. economy.

This dream run of tech stocks is likely to continue in 2020 owing to a likely interim trade deal between the United States and China by mid-January. China’s trade spat with the United States, its largest trading partner, resulted in significant slowdown of its economy. However, a strong Chinese economy will give U.S. technology companies a solid boost as China is the largest market for high-tech products.

On the other hand, China also plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries. Rollback of some tariffs imposed by the U.S. government on China will reduce input costs for high-tech producers.

Moreover, the technology sector is benefiting from continued strong digital transformation. The rising demand for technologically superior products has been a silver lining for this sector in an otherwise tough environment.

The last few years witnessed a series of breakthroughs in cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, which have set the stage for robust growth. In this regard, large-scale commercial deployment of 5G wireless network will boost the overall technology sector.

Our Top Picks

Consequently, it will be prudent to invest in Nasdaq Composite stocks with a favorable Zacks Rank. We have narrowed down our search to five such stocks that have strong growth potential for 2020. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price prformance of our five picks in the past year.

Applied Materials Inc. AMAT provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The company has an expected earnings growth rate of 24% for the current year (ending October 2020). The Zacks Consensus Estimate for the current year has improved 14.6% over the last 60 days.

Synopsys Inc. SNPS offers a full suite of products used in the logic synthesis and functional verification phases of chip design, including a broad array of reusable design building blocks. The company has an expected earnings growth rate of 14.5% for the current year (ending October 2020). The Zacks Consensus Estimate for the current year has improved 4.6% over the last 60 days.

MKS Instruments Inc. MKSI provides instruments, subsystems, and process control solutions that measure, monitor, deliver, analyze, power, and control critical parameters of manufacturing processes worldwide. It operates through two segments, Vacuum and Analysis, and Light and Motion. The company has an expected earnings growth rate of 39.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the last 60 days.

Cornerstone OnDemand Inc. CSOD is a provider of a comprehensive learning and talent management solution delivered as software-as-a-service (SaaS) solutions. It offers integrated platforms for learning management, enterprise social networking, performance management, succession planning and extended enterprise. The company has an expected earnings growth rate of 38.4% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 60 days.

ManTech International Corp. MANT is a leading solution provider of mission-critical national security programs for the Intelligence Community, the Space Community and other U.S. federal government customers. The company has an expected earnings growth rate of 7.9% for the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the last 60 days.

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