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Tech Stocks Remain a Solid Option for Investors

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While all the other sectors rebounding strongly this year have made headlines, technology has continued to outperform expectations. And that isn’t just because of all the shortages and distribution glitches that effectively strengthened prices. Remember, this is one of the few areas that had a really strong 2020. So any growth at all from those levels would be encouraging.

Most tech stocks are projecting continued growth this year as the race to digitization that began last year continues through this one. Growth rates may be expected to moderate in 2022, but that’s still six months away.

And so we see that the 2021 earnings estimate for the group has been raised 17.2% over the past year. Last year, analysts expected 2022 earnings to decline, but with the new year, there was a reversal in sentiment. The chip shortage and supply chain issues also created some uncertainty earlier on in the year, which may have led to the decline in March.

But from April onward, analysts appear much more confident. And so, at the current level, the 2022 estimate is actually up 1.8% from the year-ago level.

Since tech stocks have together risen about 19% year to date, the estimate revisions appear priced in, which also likely contributed to its placement at number 13 (out of a total 16 sectors). But this is a very large and diverse segment of the market and the secular drivers are simply huge. So opportunities are not that hard to find.

Take the Electronics - Parts Distribution industry for example. The industry is in the top 4% of Zacks ranked industries. And as many of us already know, industries ranked in the top 50% have a much stronger chance of outperforming others, the higher their position, the better. Particularly if the stocks we’re considering here have Zacks #1 (Strong Buy) or #2 (Buy) ranks.

Three stocks make this list, they are Arrow Electronics (ARW - Free Report) , Avnet (AVT - Free Report) and WESCO International (WCC - Free Report) . They all have value-growth-momentum (VGM) scores of A or B with double-digit earnings growth expectations that are well above the sector averages. What’s more, on a price-to-forward 12 months earnings basis, ARW and AVT are trading below their median value over the past year. WCC is trading close to its median value. So valuation is not rich.

#2 ranked Apple (AAPL - Free Report) with its VGM Score of B is also looking good. AAPL belongs to the Computer - Mini computers industry (top 10%). In its current year ending Sep 2021, the company is expected to grow earnings 57.9%. The 3.2% expected growth for 2022 is also above the sector average.

As far as valuation is concerned, its 25.7X P/E multiple is well below its median value over the past year. Although this is above the S&P’s 21.9X, this doesn’t look like a good reason to forego Apple.

ON Semiconductor Corp. (ON - Free Report) has a #2 rank and VGM Score of A. It belongs to the attractive Semiconductor - Analog and Mixed industry (top 18%). The company is expected to grow earnings 127.9% this year followed by 19.8% growth in the next. Most encouragingly, its P/E multiple of 18.3X is below its median value of 21.8X over the past year and of course also below the S&P 500.

Next up is #2-ranked Sensata Technologies Holding N.V. (ST - Free Report) . The stock has a VGM Score A and belongs to the Instruments – Control industry (top 23%). It is expected to grow earnings 56.1% in 2021 and 15.1% in 2022. Its valuation is also attractive: a 15.6X P/E that is below the 16.8X median and also the S&P 500.

Tokyo Electron Ltd. (TOELY - Free Report) has a Zacks #2 rank and VGM Score of B. The Semiconductor – Discretes industry, to which it belongs is placed at the top 27% of Zacks-classified industries. Not only that- its earnings are expected to grow 44.4% in the year ending in March 2022, with 12.9% growth projected for the following year. However its valuation of 19.6X P/E trails its 21.0X median value and also the S&P 500. So this stock looks ripe for the picking.

#2-ranked Vishay Intertechnology (VSH - Free Report) with its VGM Score of A also belongs to the Semiconductor – Discretes industry. The company is expected to grow earnings 135.9% this year and 1.4% in the next. Its P/E of 10.3X is below the 15.4X median value and the S&P 500, which makes it a cheap stock.

Jabil, Inc. (JBL - Free Report) is an Electronics - Manufacturing Services (top 33% of Zacks-classified industries) company with a Zacks Rank #2 and VGM Score of A. Its earnings growth projections for 2021 and 2022 (ending August) are 91.0% and 7.4%, respectively. At 9.9X P/E, its valuation is attractive both in terms iof its historical performance and with respect to the S&P 500.

And finally, we have Seiko Epson Corp. (SEKEY - Free Report) , which has a Zacks Rank #2, VGM Score A, and belongs to the Office Automation and Equipment industry (top 37%). Its earnings are expected to grow 24.4% in the current year ending in March and 9.8% in the following year. Its 17.0X P/E makes valuation attractive both with respect to its own historical performance and the S&P 500.

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