On Oct 6, in a sudden turn of the event, President Donald Trump abruptly halted the ongoing negotiation between the Republicans and Democrats on the second round of fiscal stimulus. This unnerved market participants and stock markets immediately turned red from the positive zone.
The Dow, the S&P 500 and the Nasdaq Composite — lost 1.3%, 1.4% and 1.6%, respectively, despite the fact that all these indexes were in the green just before Trump's tweet. Investors remained highly concerned about the pace of the U.S. economic recovery.
Notably, the first trench of the fiscal stimulus — known as CARES Act — ended in July. Despite two months of prolonged negotiations, the U.S. Congress failed to reach an amicable solution related to the size and scope of a fresh round of coronavirus-aid.
Moreover, one of the primary reasons for Wall Street's sharp downturn in September after a five-month-long rally is the uncertainty regarding a new fiscal stimulus.
Technology Sector Becomes the Best Bet
Technology stocks are the best bets in the absence of a fresh fiscal stimulus. Lack of stimulus will significantly hurt reopening stocks like airlines, leisure travel, restaurants and bars, cinema hall and theater operators, theme parks and other entertainment segments.
Recovery of the jobs market, U.S. consumer spending and small businesses — the three important parts of the economy — is likely to face several hindrances. This will affect cyclical stocks like consumer discretionary, industrials, materials and financials. It may also jeopardize the much-hyped V-shaped recovery of the U.S. economy.
However, the technology sector is not dependent on more stimulus. We must not forget that the growing demand for high-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, has boosted the overall space.
Moreover, the technology sector plunged last month on concerns of overvaluations. At present, several well-established stocks of this sector are available at attractive valuations.
Coronavirus Boosts Digitization
Meanwhile, the outbreak of the coronavirus globally has established digitization as the new normal for what is being touted as going to be a very long time. Let's consider no vaccine or a definite line of treatment appears in the near future. The technology sector would remain one of the biggest beneficiaries of the new normal for communication.
As social distancing is keeping near and dear ones away, people, especially the citizens of emerging and less-developed countries, are reaching out more than ever with smartphones, tablets or notebooks.
The thrust for digitization is likely to come from two sides. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.
Our Top Picks
At this stage, it will be prudent to invest in large-cap tech stocks with a favorable Zacks Rank. We have narrowed down our search to five such stocks that have strong growth potential for 2020 and robust EPS estimate revisions. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our five picks in the past six months.
salesforce.com.inc. ( CRM Quick Quote CRM - Free Report) is the leading provider of on-demand Customer Relationship Management software, which enables organizations to better manage critical operations such as sales force automation, customer service and support, marketing automation, document management, analytics and custom application development.
The Zacks Rank #1 company has an expected earnings growth rate of 25.1% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved by 25.9% over the last 60 days. The stock has climbed 65.5% in the past six months.
Zoom Video Communications Inc. ( ZM Quick Quote ZM - Free Report) provides a video-first communications platform worldwide. Demand for its remote work platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or any effective treatment for coronavirus is developed.
The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved by 4.9% over the last 30 days. The stock has soared 306% in the past six months.
Qorvo Inc. ( QRVO Quick Quote QRVO - Free Report) develops and commercializes technologies and products for wireless and wired connectivity worldwide. It operates in two segments, Mobile Products, and Infrastructure and Defense Products.
The Zacks Rank #1 company has an expected earnings growth rate of 11.5% for the current year (ending March 2021). The Zacks Consensus Estimate for current-year earnings has improved by 7% over the last 30 days. The stock has surged 50.6% in the past six months.
CGI Inc. ( GIB Quick Quote GIB - Free Report) provides information technology and business process services in Canada, Northern Europe, France, the United States, the United Kingdom, Europe and the Asia Pacific. Its services include management of IT and business outsourcing, systems integration and consulting, and software solutions selling.
The Zacks Rank #2 company has an expected earnings growth rate of 12.4% for the current year (ending September 2021). The Zacks Consensus Estimate for current-year earnings has improved by 0.7% over the last 7 days. The stock has advanced 16.4% in the past six months.
Alphabet Inc.'s ( GOOGL Quick Quote GOOGL - Free Report) Google has been growing rapidly in this fast-growing highly-competitive cloud market. The Google search engine is advanced, simple and adaptable, all at once. This is the main reason for its leading search market share. Alphabet is leveraging its Android OS not just to build search market share but also to drive sales of apps and digital products through Google Play.
Although the company's current-year expected earnings growth rate is negative, it has estimated earnings growth of 29.9% for next year. The Zacks Consensus Estimate for the current year and next year has improved 0.7% and 0.3%, respectively, in the last 30 days. The Zacks Rank #2 stock has appreciated 20.2% in the past six months.
Biggest Tech Breakthrough in a Generation
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