The global economy continues to reel under the impact of the COVID-19 pandemic. The sudden spike in the number of cases from the start of 2021 across the United States and several European nations and emergence of new strains point toward a renewed phase of the coronavirus. The chances of a full-fledged lockdown and the cloud of uncertainty over the efficacy of vaccines have been keeping investors tensed.
We note that the technology sector, which has been extremely resilient to the impact of COVID-19-induced disruptions is expected to perform well in the second quarter 2021 as market watchers are hoping for an economic turnaround in the United States post the stimulus approval, followed by Fed and IMF’s progressive economic outlook announcements. Markedly, the Technology Select Sector SPDR (XLK), has appreciated 65.6% over the past year, outperforming the Dow Jones and the S&P 500 indexes’ rally of 49.4% and 44.2% respectively. What’s Driving the Tech Sector Rally?
Prospects of the tech sector continue to look bright in the near term, primarily fueled by changing consumer preference and behavior. We expect the work-from-home and online learning wave to keep demand for remote-working tech including advanced technology-based virtual meetings and conference tools, cloud services and cybersecurity solutions high.
Additionally, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage. All of 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 fact, per IDC data, the global semiconductor market is projected to hit $476 billion in 2021, up 7.7% year over year, based on a gradual recovery as economies open up following dissemination of COVID-19 vaccines. 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. Apart from this, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities. Besides, contactless payment and delivery have gained significant traction during the outbreak. Further, an e-commerce boom prompted by changing consumer behavior is a key catalyst. Here we pick five stocks that apart from boasting strong fundamentals have a favorable combination of a Growth Score of A or B and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Per the Zacks’ proprietary methodology, stocks with such a perfect mix of elements offer solid investment opportunities. Notably, each of these stocks has a market cap of more than $5 billion and has outperformed the S&P 500 composite on a year-to-date basis. Year to Date Performance Generac Holdings ( GNRC Quick Quote GNRC - Free Report) is benefiting from robust demand for its home standby generators due to higher power outages, while the “Home as a Sanctuary” trend gains traction. This $20.7-billion company is riding on its push into the California market and expansion into clean energy technologies. Moreover, the company is likely to benefit from its emphasis on improving the end-user experience and helping customers lower utility costs. Generac Holdings has a Growth Score of A. The Zacks Consensus Estimate for Generac’s 2021 earnings stands at $8.68 per share, having moved 17.6% north over the past 60 days. Earnings are expected to grow 34% from the figure reported in the preceding year. Applied Materials ( AMAT Quick Quote AMAT - Free Report) is driven by strong momentum across Semiconductor Systems and Applied Global Services. Further, solid demand for silicon in several applications across various markets is a tailwind. Increased customer spending in foundry and logic on the back of rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets is a major positive as well. Also, strong momentum in conductor etches is benefiting this Zacks Rank #2 company’s position in DRAM and NAND. Applied Materials has a Growth Score of A. The consensus mark for this $127.4-billion company’s fiscal 2021 earnings stands at $5.98 per share, having moved 19.4% north over the past 60 days. Earnings are expected to increase 43.4% over the year-ago period reported number. Alphabet Inc. ( GOOGL Quick Quote GOOGL - Free Report) has evolved from primarily being a search-engine provider into diversified areas such as cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. Additionally, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term. The company’s cloud computing arm, Google Cloud, is continuously gaining solid momentum with the support of its robust ML solutions. Its Document AI solution helps in analyzing documents efficiently. Moreover, expanding data centers will continue to bolster this $1530.7-billion company’s presence in the cloud space. Further, its deepening focus on wearables category remains a tailwind. Alphabet has a Growth Score of B. The Zacks Consensus Estimate for Alphabet’s 2021 earnings stands at $69.28 per share, having moved 0.3% north over the past 60 days. Earnings are expected to grow 18.2% from the figure reported in the preceding year. Waters Corporation ( WAT Quick Quote WAT - Free Report) is benefiting from growth in its top global pharma accounts. Solid momentum across new product lines like BioAccord and Cyclic IMS remains a positive. Further, the company’s growing investments in liquid chromatography (LC), LC-MS and chemistry categories are aiding it in gaining traction in the large molecule market. Also, growing momentum across biomedical research applications is another positive. Markedly, Waters, which is currently one of the leading players in the mass spectrometry (MS) market, has been garnering significantly from the sale of its advanced MS instruments. Further, increasing regulation around food safety and quality, strict conditions for food testing, and environmental and fine chemical applications bode well for the company’s prospects. Additionally, strong execution of the company’s cost-cutting strategies remains a tailwind. Waters Corporation has a Growth Score of B. The Zacks Consensus Estimate for this $19 billion company’s 2021 earnings stands at $5.94 per share, having moved 0.2% north over the past 60 days. Earnings are expected to grow 5.4% from the figure reported in the preceding year. Adobe Inc. ( ADBE Quick Quote ADBE - Free Report) is benefiting from strong demand for its creative products. The company’s Creative Cloud, Document Cloud and Adobe Experience Cloud products are key top-line growth drivers. Rising subscription revenues and solid momentum across the mobile apps remain major catalysts. Growth in emerging markets, robust online video creation demand and improving average revenue per user are tailwinds. We remain optimistic about Adobe’s market position, compelling product lines, continued innovation, solid adoption of Creative Cloud and Adobe marketing cloud. Adobe has Growth Score of B. Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 4.7% to $11.79 over the past 60 days. Earnings are expected to grow 16.7% from the figure reported in the preceding year. 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. Today, See These 5 Potential Home Runs >>