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Will Technology Sector Rebound Continue? 5 Top Picks

Nalak Das

After a disappointing 2018, Wall Street has been gaining momentum steadily in the New Year. U.S. stock markets have commenced 2019 on a brighter note. The technology sector, which bore the brunt of market volatility in 2018, is also gradually recovering in 2019.

Positive development on the trade war front, financial stimulus by the Chinese authorities to stabilize its economy and massive product innovations will act as near-term catalysts for the technology sector’s revival. Consequently, it will be prudent to invest in technology stocks with a favorable Zacks Rank.

Technology Sector Rebounds in 2019

The technology sector suffered severe setback in 2018. Technology Select Sector SPDR (XLK), one of the 11 sectors of the S&P 500, declined 2.9% last year. The tech-laden Nasdaq Composite plunged 3.9% in 2018. However, in 2019 so far, XLK and Nasdaq Composite are up 3.1% and 5.9%, respectively.

Notably, on Jan 15, Netflix Inc. NFLX raised its U.S. prices in the range of 13-18% effective immediately. This was the biggest price increase announced by the company in 12 years. Although high prices could alienate subscribers, the company is confident of retaining customers on the back of its high quality content. Netflix’s positive business outlook has helped FAANG stocks rally significantly.

Positive Developments on Trade War Front

The three-day meeting between mid-level delegations of the United States and Chins ended on a positive note on Jan 5, although broad-based solutions to tariff conflicts are yet to be reached. This meeting at least laid the foundation for further negotiations to forge a permanent deal in order to resolve the trade disputes between the two largest trading nations of the world. China has already provided assurance of importing "a substantial amount" of agricultural, energy and manufactured goods and services from the United States.

China Taking Steps to Stimulate Economy

In order to stabilize its economy, Chinese authorities are taking several initiatives. The People’s Bank of China has decided to increase efforts to stimulate growth of the country’s economy by improving credit availability for smaller companies. Moreover, the Chinese Ministry of Finance has pledged to cut taxes and augment infrastructure spending which will aid in bolstering market sentiments.

A strong Chinese economy will be a boost for the U.S. technology companies as China is the largest market for high-tech products. Additionally, China also plays the role of low-cost supplier of inputs to the high-tech U.S. industries.

Product Innovations

The technology sector is benefiting from continued strong digital transformation environment. The last few years have witnessed a series of breakthroughs in cloud computing, predictive analysis, artificial intelligence (AI), self-driving vehicles, digital personal assistants, and Internet-of-Things (IoT), which have set the stage for robust growth. The United States is all set to witness massive deployment of 5G wireless networks in 2019. This will significantly raise the demand for high-tech handheld gadgets and micro-processors.

Our Top Picks

At this stage, it will be a prudent move to invest in stocks from technology sector. Each of our picks sports 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 performance of our five picks in the past one year.

Coupa Software Inc. COUP is a leading provider of cloud-based spend management platform. The company has expected earnings growth of 157.1% for current year. The Zacks Consensus Estimate for the current year has improved by 271.4% over the last 60 days.

Verint Systems Inc. VRNT provides actionable intelligence solutions and value-added services worldwide. The company has expected earnings growth of 12.8% for current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days.

The Meet Group Inc. MEET operates a powerful live-streaming video platform, empowering global community to forge meaningful connections. The company has expected earnings growth of 19.4% for current year. The Zacks Consensus Estimate for the current year has improved by 4.9% over the last 60 days.

Inseego Corp. INSG provides software-as-a-service, Internet of Things, and mobile solutions worldwide. The company has expected earnings growth of 290% for current year. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 60 days.

Synopsys Inc. SNPS provides electronic design automation software products used to design and test integrated circuits (ICs). The company has expected earnings growth of 8.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.7% over the last 60 days.

More Stock News: This Is Bigger than the iPhone!

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