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Buy the Dip? 2 Top Ranked Tech Stocks Pulling Back Now

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Following the Fed’s interest rate announcement on Wednesday stocks sold off aggressively, but was that just a knee jerk reaction? If so, this sell-off is an incredible opportunity to pick up leading technology stocks.

At the FOMC meeting yesterday, Jerome Powell left interest rates as they were, confirming the market’s suspicion that they would pause interest rate hikes. But, the committee’s dot plot, a forecast of future rate hikes, indicated a more hawkish tone, which is the likely cause of the sharp sell off. However, they also increased GDP growth expectations.

I think it is short-sighted to discount this as bad news. It looks to me that the Fed is taking a defensive stance and showing that they remain extremely cautious in its fight against inflation. This leaves the possibility for surprises to the upside though, because so long as economic growth and inflation don’t surprise to the upside, the market can expect more dovishness in the future.

Along with the tremendous strength the stock market has shown this year, I continue to expect a strong performance into the end of the year. Because of this stance, I am focused on picking up shares in the strongest stocks in the market.

It also appears that investors are puking technology stocks, which has been the strongest sector of the year. During the month of September, the technology sector ETF XLK is the weakest of the bunch and is coming into levels that signal it may be oversold.

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Vertiv (VRT - Free Report)  is a global company that specializes in designing, manufacturing, and servicing critical infrastructure technologies for vital applications in data centers, communication networks, and commercial and industrial environments.

Headquartered in Columbus, Ohio, Vertiv's portfolio includes power management products, thermal management solutions, integrated rack systems, and other technologies essential for ensuring the continuous operation of crucial electronic systems. Vertiv serves a diverse range of customers, including data center operators and telecom network providers, striving to meet the evolving needs of the digital landscape.

In addition to being one of the best performing stocks in the market YTD, Vertiv enjoys a Zacks Rank #1 (Strong Buy) rating, indicating upward trending earnings revisions.

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Sales for VRT are projected to grow by 20% annually in the current fiscal year to $6.8 billion, while earnings are expected to increase by 200% YoY to $1.59 per share for the same period. Furthermore, analysts have unanimously upgraded earnings estimates across timeframes for the technology company by as much as 32%.

Zacks Investment Research
Image Source: Zacks Investment Research

Even with its high sales and earnings growth VRT trades at a relatively fair valuation. It is trading at a one year forward earnings multiple of 23.3x, which is below the industry average of 35x, and just above its three-year median of 21x.

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Dell Technologies

Dell Technologies (DELL - Free Report)  is a multinational technology company known for its innovations in the personal computing industry. Founded by Michael Dell in 1984, the company has expanded its offerings to include laptops, desktops, servers, storage solutions, networking products, software, and related services.

Headquartered in Round Rock, Texas, Dell Technologies serves customers worldwide, ranging from individual consumers to large enterprises, with a focus on delivering cutting-edge technologies and solutions. The company operates under a variety of brands including Dell, Dell EMC, Pivotal, RSA, Secureworks, Virtustream, and VMware, addressing a broad spectrum of technology needs.

Although DELL has moved out of the spotlight, which favors some other more well-known technology companies, it has been a fantastic stock to own this year, nonetheless. With returns of 74% YTD it has far outperformed both the broad market and respective industry.

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Dell Technologies stock also has one of the most compelling technical chart patterns in the market.  The price action has been forming an ideal bull flag. So long as this market holds up, and Dell remains above the support level of $67.75, it should begin to move higher, and breakout above the $69.75 level and rally to new highs.

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Earnings estimates for Dell Technologies have been on the rise, as you can see in the chart below, they have snapped higher in the last week, giving it a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings estimates have been increased by 8.1%, while FY23 have been raised by 13.5%.

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Image Source: Zacks Investment Research

DELL too trades at a very fair valuation. Today, it is trading at a one year forward earnings multiple of 13x, which is well below the industry average of 35x, and above its three-year median of 10.3x.

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Image Source: Zacks Investment Research

Bottom Line

The recent turbulent market reactions post-Fed announcements I think are more of transient and emotional adjustments rather than a harbinger of a lasting downturn. The current scenario is ripe with opportunities, particularly within the resilient tech sector. The Fed’s protective stance and the market’s enduring strength this year are indicative of the latent potential for sustained growth and favorable returns. Now may be a pivotal moment for discerning investors to capitalize on these temporary setbacks in the tech sector and fortify their portfolios.

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