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Risk/Reward Skewed for Netflix; Buy These 5 Tech Stocks Instead

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Sejuti Banerjea
·6 min read
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Netflix NFLX reported fourth quarter revenue that beat expectations by a sliver and earnings that missed by a mile. But the reason investors still cheered was the number of net subscriber adds that at 8.5 million were well ahead of the 6 million that many on Wall Street were expecting.

And it was particularly creditable given the strong first half and management’s own expectations about pull-ins into the first half, as people suddenly found themselves at home with a lot of time on their hands.

Also encouraging was the continued improvement in average revenue per membership on a currency-neutral basis.

But even as we continue to cheer the 200 million total subscriber mark that it hit at 2020-end, it’s important to note that Disney+ is already almost halfway there, in spite of being a much newer offering.

Also in contention for streaming market share is Warner’s HBO Max, which like Disney, has a ton of stuff to offer. With a recent change in its streaming plans, Warner is upping the ante in the space, which could help it take share from Netflix, which also has a broad spread lined up. Amazon Prime is also worth adding to the mix, because it has a pretty good service, offering both acquired and original content that is also bundled for free with its hugely popular Prime membership. And then there’s Apple that has just about started testing the waters.   

Netflix shares have traded in a tight range over the past six months, partly because of management’s cautious tone about new subscriber adds. So they really aren’t expensive right now. However, you only have that many hours of free time per day in which to watch these shows, especially if you’re getting back into the normal work stream as is envisaged for this year. So increased competition this year feels like something to keep an eye on.

In any case, there are many other stocks that you could add more profitably perhaps at this time. The earnings season is in fact a good time to adjust positions and also make some quick gains.

At Zacks, we have the Earnings Expected Surprise Prediction (ESP), which is a proprietary tool that determines the stocks that have the best chances of reporting a positive surprise with their next earnings announcement. ESP is essentially the percentage difference between the most accurate (or most recent) estimate and the Zacks Consensus Estimate. So a positive ESP indicates recent upward revision in estimates, which one can reasonably assume is because of positive developments regarding the stock.

And it has also been seen that stocks reporting a positive surprise have greater chances of appreciating either immediately, or over the next few months.

This means that if we can devote a certain amount of our available funds to stocks with a Zacks #1 (Strong Buy), #2 (Buy) or #3 (Hold) rating that also have a positive earnings ESP, there’s a fair chance of making some gains within a reasonably short period of time.

So here, I’ve chosen a few stocks from the tech sector that have a buy rating and positive ESP-

Knowles Corp. KN sells MEMS-based products including advanced micro-acoustic, audio processing and precision device solutions into the mobile consumer electronics, IoT, communications, medical, defense, automotive and industrial markets.

It belongs to the Communication – Components industry, which is in the top 32% of Zacks-classified industries. The top 50% outperform the bottom 50% by a factor of 2 to 1. Moreover, it has also been seen that half the price appreciation in a stock is attributable to the industry that it it’s in.

It is expected to grow revenue and earnings by 14.2% and 104.2%, respectively in 2021.

The shares carry a Zacks Rank #1 and earnings ESP of 5.6%. So there is a good chance of an earnings beat this quarter, followed by a bump-up in share prices.  

Silicon Motion Technology Corp. SIMO offers microcontroller ICs for NAND flash storage devices.

It belongs to the Electronics – Semiconductors industry, which is in the top 40% of Zacks-classified industries.

It is expected to grow revenue and earnings by a respective 11.0% and 6.9% this year.

The shares carry a Zacks Rank #2 and earnings ESP of 2.0%.

Himax Technologies, Inc. HIMX develops and sells semiconductors used in large-size TFT-LCD panels for desktop monitors, notebook computers and TV application, as well as mid-size TFT-LCD panels for mobile handsets and consumer electronics products such as digital cameras, mobile gaming devices and car navigation displays. More recently, it started adding LCD TV chipsets and LCOS microdisplays.

It too is part of the Electronics – Semiconductors industry.

Its 2021 revenue and earnings are expected to grow 20.7% and 62.5%, respectively.

The shares carry a Zacks Rank #2 and earnings ESP of 14.3%.

Sensata Technologies Holding N.V. ST develops and sells innovative sensor-based personalized electrical protection and power management solutions from automotive braking systems to aircraft flight controls. Its products are ubiquitously used in industrial, heavy vehicle and off-road, as well as aerospace industries.

The company belongs to the Instruments – Control industry (top 41%).

Its revenue and earnings are expected to grow a respective 15.9% and 52.2% this year.

The shares carry a Zacks Rank #2 and earnings ESP of 2.78%.

Vishay Intertechnology, Inc. VSH is a global manufacturer and supplier of MOSFET semiconductors and passive components including diodes and optoelectronic components.

The company belongs to the Semiconductor - Discretes industry (top 9%).

Its revenue and earnings are expected to grow a respective 10.5% and 44.6% this year.

The shares carry a Zacks Rank #2 and earnings ESP of 4.82%.

 

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Sensata Technologies Holding N.V. (ST) : Free Stock Analysis Report
 
Himax Technologies, Inc. (HIMX) : Free Stock Analysis Report
 
Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report
 
Vishay Intertechnology, Inc. (VSH) : Free Stock Analysis Report
 
Knowles Corporation (KN) : Free Stock Analysis Report
 
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