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4 Tech Stocks to Pick as the Sector Drives Market Rally in Q3

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The U.S. stock market rallied in the third quarter as investors shrugged off worries about the rising coronavirus cases and rejoiced on the economic reopening efforts. With a gain of 11%, the tech-laden Nasdaq Composite index rallied the highest, followed by the S&P 500 and Dow Jones appreciating 8.5% and 7.6%, respectively.

Notably, the stock market has been in a recovery mode since April after bottoming out in late-March due to the pessimism surrounding the pandemic. The year-to-date (YTD) loss of Dow Jones has contracted to 3% from 23.2% as of Mar 31. The Nasdaq Composite and the S&P 500 indexes’ YTD return have even turned to +23.4% and +3.6%, respectively, from -14.2% and -1.9% as of Mar 31.

Investors are hoping that the worst of the pandemic is almost over and the economy will swing back to a recovery mode on the government’s easing restrictions. Optimism over a potential vaccine for COVID-19, along with an uptick in economic activities and an improving job market, has also reinstated investor confidence.

Tech Sector Leads Market Recovery

The technology sector has played a key role in the quicker recovery of the stock market. In the September-end quarter, the Technology Select Sector SPDR (XLK), which tracks an index of the S&P 500 technology stocks, has rallied 11.7%. Moreover, the ETF has a positive year-to-date return of 25.4%, outperforming the gains of all three major U.S. indices.

The technology sector has been strongly resilient to the negative impact of the pandemic-induced disruptions, aided by advanced technologies, including Artificial Intelligence (AI), Machine Learning (ML), Augmented Reality (AR), cloud computing, blockchain and robotics.

The adoption rate of Internet-based services and apps has been increasing rapidly as people are compelled to stay indoors. Moreover, the global work-from-home wave is bolstering demand for advanced technology-based virtual meetings and conference tools.

Additionally, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage. All these, in turn, are fueling growth for high-speed Internet services.

Moreover, the rising demand for robust communication networks is another positive. Further, the growing proliferation of AI technology, and cloud computing products and services in managing this pandemic situation is a tailwind. All these trends are stoking demand for semiconductor chips.

In addition, the long-term growth prospects of tech companies look promising owing to the continued digital transformations. The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Moreover, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.

Considering the healthy growth prospects of tech companies, it makes sense to invest in this space for long-term gains.

Choosing the Stocks

It is difficult to pick the right stocks from a wide range of available investment opportunities.

This is where the Zacks Stock Screener comes in handy. With the help of this screener, we have filtered four tech stocks that are incredible for investment right now. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, the stocks have a VGM Score of A or B. Per Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.

Our Picks

Synaptics (SYNA - Free Report) is well poised to capitalize on its market-leading position for both touchpads and secure fingerprint sensors amid the upbeat trends in PC shipments.

Furthermore, incremental adoption of the company’s edge SoCs integrated with AI and embedded neural network capabilities for smart video and audio devices is driving top-line growth. Additionally, the acquisition of Broadcom’s (AVGO - Free Report) wireless IoT connectivity business (Jul 23) and the buyout of DisplayLink (Jul 31) have fortified Synaptics’ portfolio offerings.

The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $6.33 per share, having moved 7.3% north in the past 30 days. The stock currently sports a Zacks Rank #1 and has a VGM Score of B.

Dropbox (DBX - Free Report) has been gaining from the evolving workspace demands for seamless enterprise communication tools.

The company offers a platform that enables users to store and share files, photos, videos, songs and spreadsheets.  Solid demand for cloud storage, triggered by the coronavirus crisis-led work-from-home wave has been acting as a tailwind for this Zacks Rank #2 company.

Additionally, integration with leading applications like Zoom Video, Slack and Atlassian are likely to expand the Dropbox paying-user base over the long run.

The Zacks Consensus Estimate for 2020 earnings has been revised 4.1% to 77 cents per share in the past 60 days. The stock has VGM Score of B.

Etsy (ETSY - Free Report) is benefiting from growing Marketplace and Services revenues. Solid momentum across active sellers and buyers is a major positive. Moreover, enhancements in search and discovery are fueling momentum among buyers. The robust Etsy ad program is also aiding seller base growth.

Apart from these, the COVID-19-induced e-commerce boom and surging mask sales are tailwinds. Also, the company is witnessing solid traction among reactivated buyers, which is contributing well. Benefits from the Reverb buyout are other positives. Etsy currently carries a Zacks Rank #2 and has a VGM Score of B.

The Zacks Consensus Estimate for the current-year earnings is pinned at $2.07 per share, having been revised upward by 2 cents in the past 30 days.

Etsy, Inc. Price and Consensus

Etsy, Inc. Price and Consensus

Etsy, Inc. price-consensus-chart | Etsy, Inc. Quote

Applied Materials (AMAT - Free Report) is well poised to benefit from the integration of advanced machine learning capabilities across its semiconductor fabs to enhance automated defect analysis.

This Zacks Rank #2 stock has developed an automated defect-classification technology that utilizes different imaging techniques to identify and eliminate defects in chip manufacturing. Also, the company's commitment toward the development of new AI and machine learning-powered computing materials and designs holds promise.

The stock has a VGM Score of B. The Zacks Consensus Estimate for fiscal 2020 earnings is $4.07 per share, having been revised upward by 6.8% in the past 60 days.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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