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Ride the FAANG Earnings Wave With These 5 Top-Ranked Picks

Swarup Gupta
HNI (HNI) delivered earnings and revenue surprises of 4.65% and -1.54%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

Tech stocks recently faced a severe downturn, sparked off by Taiwan Semiconductor Manufacturing Company Ltd.’s TSM weak financial outlook for the second quarter. Adding to investor concerns were persistent worries over weak demand for Apple Inc.’s AAPL iPhones.

In March, the data privacy scandal which hit Facebook, Inc. FB triggered a broad selloff in tech shares. These concerns had then spilt over into April, spooking tech investors.

However, it now seems that strong earnings from the FAANG group of stocks have dispelled lingering concerns surrounding the sector. Tech stocks have rebounded strongly and are lucrative investment options at present.  

Apple Consolidates Winning Streak, Facebook Sparks Rebound

Ahead of earnings on Tuesday, shares of Apple gained 2.3%, powering a 0.9% increase for the Nasdaq. Apple posted second quarter 2018 earnings of $2.73 per share, beating the Zacks Consensus Estimate of $2.69.

Revenues came in at $61.1 billion, in line with the Zacks Consensus Estimate of $61.1 billion. iPhone unit sales were up 3% from the prior-year quarter, with iPhone segment revenue coming in 14% higher. (Read: Apple Posts Earnings Beat & Strong Guidance, Hikes Dividend By 16%)

Further, Apple said that it would be raising its dividend by 16% while also announcing “a new $100 billion share repurchase authorization.” Of course, the initial tech rebound was sparked off by stellar results from Facebook which helped tech stocks rebound on Apr 26.

The social media giant comfortably surpassed both earnings and revenue estimates for the first quarter. But more importantly, Monthly Active Users and Daily Active Users both posted year-over-year gains of 13%, an important development after events like the “Delete Facebook” Campaign. (Read: Facebook Q1 Earnings Top Estimates, User Growth Solid)

Netflix Starts Strong Earnings Cycle for FAANG

Facebook’s strong numbers completed a cycle which began with Zuckerberg’s successful testimony in front of Congress. It also cemented tech’s position as the primary catalyst for market gains. But there is a stronger fundamental basis for this turnaround since all other FAANG components have reported strong earnings numbers.

The cycle began with Netflix’s NFLX first-quarter 2018 earnings of 64 cents per share which grew 60% on a year-over-year basis and beat the Zacks Consensus Estimate by a penny.

Revenues of $3.701 billion increased 40.4% year over year and came ahead of the Zacks Consensus Estimate of $3.689 billion. Moreover, the company added 7.41 million subscribers (1.96 in domestic market and 5.46 in international), much more than the expected 6.35 million. (Read: Netflix Q1 Earnings and Revenues Crush Estimates)

Amazon, Alphabet also Post Strong Results

And Amazon.com, Inc. AMZN and Alphabet Inc. GOOGL also delivered strong earnings numbers. Amazon reported first-quarter 2018 earnings of $3.27 per share, crushing the Zacks Consensus Estimate by $2.05 (168%) and also soared 121% year over year.

Net sales of $51.04 billion comfortably surpassed the Zacks Consensus Estimate of $50.17 billion. Amazon Web Services (AWS) revenues climbed 48.6% year over year to $5.44 billion primarily driven by expanding customer base. (Read: Amazon Q1 Earnings Crush Estimates, Sales Surge Y/Y)

Meanwhile, Alphabet’s earnings jumped 29% year over year. Earnings jumped on a change in accounting policy that compelled it to recognize the value of its stake in Uber. (Read more: Alphabet Q1 Earnings & Revenues Beat Estimates)

Our Choices

Tech stocks had been battling multiple headwinds ever since news of the Facebook data scandal grabbed the headlines. Dismal projection from Taiwan Semiconductor and the specter of lower iPhone sales had added to the sector’s troubles over the past several weeks.

But strong earnings numbers from the crucial FAANG group seems to have turned the tide for now. Investors are flocking to pick up tech stocks again and they are likely to make strong additions to your portfolios. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation LRCX supplies wafer fabrication equipment and services to the semiconductor industry.

Lam Research’s projected growth rate for the current year is 75.8%.The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 30 days.

Seagate Technology Plc STX is the second-largest manufacturer of hard disk drives (HDDs) in the United States.

Seagate Technology’s expected earnings growth for the current year is 21.1%. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days.

Western Digital Corporation WDC is one of the largest HDD producers in the United States.

Western Digital’s expected earnings growth for the current year is 55%. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

Micron Technology, Inc. MU has established itself as one of the leading worldwide providers of semiconductor memory solutions.

Micron Technology’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 60 days.

Cypress Semiconductor Corporation CY is an original equipment manufacturer (OEM) of digital and mixed-signal integrated circuits (ICs).

Cypress Semiconductor’s expected earnings growth for the current year is 38.2%. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 30 days.

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Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Cypress Semiconductor Corporation (CY) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
Lam Research Corporation (LRCX) : Free Stock Analysis Report
 
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
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