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Tech Stocks Ride on Trade Optimism: 5 Must Haves

Tirthankar Chakraborty

U.S. stocks hit fresh highs at the beginning of a holiday-shortened week, mostly buoyed by a rally in technology companies. The broader S&P 500 and the tech-laden Nasdaq, in particular, ended Monday’s trading session at record highs on reports that the United States and China are nearing a trade truce.

The Nasdaq gained 1.1%, while nine out of 11 major S&P 500 sectors finished in the green. What’s more, the technology sector rose the maximum on the benchmark index, at 1.9%. Trade-sensitive chip stocks also jumped, including Lam Research and Applied Materials, eventually lifting the Philadelphia Semiconductor index 2.3%. Nvidia was the top gainer on the chip index, up 4.4%.

By the way, tech behemoths, including Apple, rose 1.3% and was the second biggest gainer among blue-chip companies listed on the Dow Jones Industrial Average.

Of late, U.S.-China trade tensions have been bogging the tech stocks down. Things have been especially bad after Huawei was added to the Commerce Department’s Entity List, which restricted U.S. companies from doing business with the Chinese tech giant. Lest we forget, the move affected revenues of Skyworks Solutions and Xilinx, to name a few.

Nonetheless, the recent developments on the U.S.-China trade front have been quite encouraging for tech players. Recently, the Chinese government asked for more protection of intellectual property rights (IPR), which has been one of the primary issues brought up in the trade negotiations with the United States.

The document released by the General Offices of the Communist Party of China Central Committee and the Chinese State Council provides details on China’s initiatives to protect intellectual-property-rights in the coming two years by cracking down on the violation of such rights.

The document states “strengthening IPR protection is the most important content of improving the IPR protection system and also the biggest incentive to boost China’s economic competitiveness.” Needless to say, disputes related to intellectual-property theft had affected trade deals between China and the United States as they scramble to reach “phase-one” of a trade deal.

5 Top Tech Picks

As trade war worries dissipate and broader markets move north, investing in solid tech stocks which are making the most of the recovery seems judicious. And why not? The broader tech sector has also a lot to gain from scaling down of trade war fears. The components of the SPDR Technology Select Sector had seen significant amount of revenues coming from China in recent years. In fact, China is in the second place in terms of revenue generation, after the United States.

Hopes of abatement in the U.S.-China trade tensions undoubtedly provided strength to the chip sector. After all, China relies heavily on U.S. chipmakers, while semiconductors make up one of its largest import categories in terms of value.

We have, thus, selected five tech stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Microsoft Corporation MSFT develops, licenses, and supports software, services, devices, and solutions. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 2.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 12.6% versus the Computer - Software industry’s projected rise of 2.7%.

Intel Corporation INTC offers computing, networking, data storage and communication solutions. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 5.5% over the past 60 days. The company’s expected earnings growth rate for the next quarter is nearly 18% compared with the Semiconductor - General industry’s estimated growth of 10.5%.

KLA Corporation KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 4% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.8%, higher than the Electronics - Miscellaneous Products industry’s projected rise of 4.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation LRCX designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 10.6% north over the past 60 days. The company’s expected earnings growth rate for the current year is 3.4% in contrast to the Semiconductor Equipment - Wafer Fabrication industry’s projected decline of 6.7%.

Garmin Ltd. GRMN designs, develops, manufactures, markets, and distributes a range of navigation, communication, and information devices. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 6.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 12.7% compared with the Electronics - Miscellaneous Products industry’s expected growth of 4.8%.

Shares of Microsoft, Intel, KLA, Lam Research and Garmin have gained 48.9%, 25.3%, 82.5%, 97.6% and 54.2%, respectively, so far this year. Take a look —

 

5 Stocks Set to Double

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