The S&P 500 and the Nasdaq broke new records once again on Monday, as Wall Street gears up for the busy part of fourth quarter earnings season. The early earnings results have come in strong and the outlook for Q4 and 2021 have continued to improve.
The S&P 500 is now up 4% in 2021, as it continues its torrid pace since the November election. Wall Street has cheered the vaccine rollout in the hopes that it will help spur a significant economic comeback later in the year, and there is certainly pent-up demand. Investors are also hoping the Biden administration will be able to spur the passage of even more economic stimulus (also read:
Q4 and 2021 Earnings Estimates Keep Going Up).
The week of January 25 will likely provide far more insights into the near-term economic picture as a diverse array of global powerhouses report their Q4 financial results and hopefully give updated guidance. The list of firms set to report includes Microsoft (
MSFT Quick Quote MSFT - Free Report) , Apple ( AAPL Quick Quote AAPL - Free Report) , Facebook ( FB Quick Quote FB - Free Report) , Starbucks ( SBUX Quick Quote SBUX - Free Report) , Tesla ( TSLA Quick Quote TSLA - Free Report) , Caterpillar ( CAT Quick Quote CAT - Free Report) , McDonald's ( MCD Quick Quote MCD - Free Report) , and countless others.
Given the bullish outlook for 2021, investors likely want to add stocks to their portfolios. Yet even with talk about more money moving into cyclical industries over the last several months, technology is here to stay as it impacts every corner of the economy and touches many aspects of our daily lives.
Therefore, strong, stable technology stocks that also pay a dividend should have a place in most diversified portfolios. Today, we dive into a couple of tech stocks that boast solid outlooks, alongside good fundamentals and a nice dividend yield.
Qualcomm ( QCOM Quick Quote QCOM - Free Report)
Qualcomm is a smartphone chip making powerhouse that’s ready to benefit from the transition to 5G and more. Investors were excited when the company resolved its legal battle with Apple in the spring of 2019. QCOM also landed a six-year licensing deal and a “multiyear” chip-supply agreement with the iPhone giant that showcased the firm’s impressive lead in 5G chips that are key to the rollout of the next-generation of smartphones.
Last summer, QCOM also ended its battle with Huawei that saw it grab a new long-term licensing agreement with the Chinese telecom firm. The wireless technology company then announced on January 13 its plans to buy Nuvia Inc. for $1.4 billion.
The deal is projected to help improve chip performance and power efficiency. Qualcomm said in prepared remarks that Nuvia will better position it “to redefine computing and enable our ecosystem of partners to drive innovation and deliver a new class of products and experiences for the 5G era.”
Qualcomm last quarter broke out sales from different segments for the first time ever to help highlight its growth opportunities in a world where everything is slowly becoming connected. The list included handsets, automotive, IoT, and RF front-end, with its connected devices (IoT), coming in as the second-largest segment in FY20, well behind smartphones (handsets). QCOM’s fourth quarter FY20 revenue soared 73% to help make up for a rough third quarter.
QCOM is set to release its Q1 FY21 financial results on February 3. Zacks estimates call for its adjusted earnings to soar 112% to $2.10 per share on 63% higher sales. Peeking ahead, its full-year revenue is projected to climb 31% in FY21 to nearly $31 billion, with FY22 projected to come in another 9% higher. This would mark its best top-line expansion since 2013 and show a strong return to growth after its FY20 sales dipped slightly. Meanwhile, its adjusted earnings are expected to climb 72% and 13%, respectively over this stretch.
Qualcomm has consistently topped our EPS estimates and its improved bottom-line consensus estimates help it grab a Zacks Rank #2 (Strong Buy), alongside its “B” grade for Momentum in our Style Scores system. Plus, QCOM stock has jumped over 85% in the last year to nearly double the tech sector. This run includes a 30% jump in the past three months that has it resting right near new highs at around $162 a share.
Despite resting near new highs, it trades at a discount to its own 12-month highs in terms of both forward sales and earnings. QCOM also trades right in-line with the S&P 500 average, and at a solid discount against the Zacks Tech sector and well below high-flyers such as Nvidia (
NVDA Quick Quote NVDA - Free Report) .
Qualcomm’s 1.6% dividend yield easily tops MSFT’s 1% and comes in not too far below the 30-year U.S. Treasury’s 1.8%. Lastly, 12 of the 20 brokerage ratings Zacks has for QCOM come in at a “Strong Buy,” with none below a “Hold.”
Broadcom ( AVGO Quick Quote AVGO - Free Report)
Broadcom is another chip firm and its semiconductor offerings are utilized within smartphones, data centers, networking equipment, and elsewhere. AVGO boasts clients such as Apple, and Wall Street is well aware of AAPL’s own chip ambitions. But it’s worth remembering that it will not come easy for Apple and Broadcom has expanded its reach into infrastructure software solutions through acquisitions. This includes its $19 billion purchase of CA Technologies in November 2018.
The company has gone on an impressive run when it comes to top-line expansion and it ended its fiscal 2020 on a high note, with fourth quarter sales up 12% for its best performance of the year. Broadcom’s FY20 revenue popped 6% to reach roughly $24 billion.
CEO Hock Tan said in December remarks that AVGO continued to benefit from “demand for networking from cloud and for broadband from service providers as well as the significant ramp in wireless, even as enterprise demand remained soft.”
AVGO shares have jumped up 50% in the past year and 280% in the last five years to crush the tech sector’s 180%. In the last three months, the stock has climbed 30% to hit records.
Along with its run, investors have benefitted from management’s commitment to continually raising its dividend, which includes an 11% boost for 2021. Broadcom’s dividend yield currently rests at an impressive 3.1% to help it blow by the S&P 500s’ 1.6% average and leave many fellow large-cap tech peers in the dust.
AVGO also achieved record profitability last year and generated $11.6 billion of free cash flow in fiscal 2020. Plus, 18 of the 22 brokerage recommendations that Zacks has for Broadcom come in at a “Strong Buy.” And AVGO’s positive bottom-line revisions help it grab a Zacks Rank #2 (Buy) right now.
Zacks estimates call for Broadcom’s adjusted EPS figure to climb 19% in fiscal 2021 and another 7% in FY22. Meanwhile, its revenue is expected to pop 10.4% this year and over 4% higher in fiscal 2022 to reach $27.5 billion.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second. Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond. Click here to download this report FREE >>