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6 Mid-Cap Tech Stocks to Buy on Dwindling Inflation Fears

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In the last two months, Wall Street was rife with speculation that mounting inflationary threats would result in U.S. economic slowdown and may compel the Fed to shift from its current ultra-dovish monetary policy. However, as we have passed the first week of second-half 2021, it seems that concerns about long-term inflation and any immediate change in Fed's policy variables are fading out.

Inflation Unlikely to Derail Growth

Two recently released studies have shown that pricing pressures seem to be cooling down although inflation remains elevated. The Institute of Supply Management reported in its U.S. services sectors PMI report for June that the price-paid sub-index (price paid by service providers) fell 1.1 points to 79.5. In its U.S. services sectors PMI report for June, the IHS Markit reported that "Survey respondents cited a reduction in concerns over inflation."

Services providers are profiting from the spread between the selling price and cost price buoyed by very strong pent-up demand. The problems related to supply-chain disruptions and labor shortage are expected to be resolved to a good extent by this year-end after the existing $300 per week unemployment benefit comes to an end in September. This should be supported by the fact that businesses are already looking for affordable alternative sources.

The Fed has reiterated that it will continue to pursue an easy-monetary policy until the labor market recovers fully. The Fed Chairman Jerome Powell has reaffirmed that the recent augmentation in the general price level is transitory.

On Jul 7, the Fed released the minutes of its latest FOMC meeting conducted during Jun 15-16. The minutes show that Fed officials are in no hurry to stop pursuing an accommodative monetary stance despite recognizing the fact that inflation is rising faster than expected buoyed by a robust economic recovery.

The majority of Fed officials have agreed that the economy is yet to reach “substantial further progress.” The Fed will think about any significant shift in its policy variables only after the economy achieved substantial progress from the pandemic-led devastations. "In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of monthly bond purchases.”

Technology Sector to Gain

A low-interest-rate regime is generally favorable for growth-oriented sectors like technology. The Technology Select Sector SPDR (XLK), one of the 11 broad sectors of the market's benchmark the S&P 500 Index, gained 8.5% since May. On Jul 7, the yield of the benchmark 10-Year U.S. Treasury Note fell as low as 1.296% before closing at 1.321%, its lowest since Feb 18.

A section of market participants remained skeptical that low yield may indicate slowing growth of the economy in the near term. However, the fundamentals of the U.S. economy remain very strong. Strong manufacturing and services activities, soaring consumer and business optimism and robust pent-up demand supported by astonishing personal savings will drive the U.S. economy in 2021 and beyond.

Low market-risk-free return means lower discounting for high growth technology stocks and higher net present value from investing. Moreover, the Fed has signaled that a rate hike is not likely to take place before late 2023. The current benchmark lending rate of 0-0.25% will be extremely helpful for those technology companies that depend on easy access to cheap credit for future growth.

How to Select Stocks

Several technology behemoths have rallied this year providing good investment opportunities. However, here we have narrowed down our search to six mid-cap (market capital >$5 billion < $10 billion) technology stocks that have provided higher returns than the S&P 500 Index in the past six months.

These stocks have strong growth potential for the rest of 2021 and they may become large-caps in due course of time or may become good acquisition targets by larger companies. Finally, 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 six picks in the past six months.

Zacks Investment ResearchImage Source: Zacks Investment Research

Teradata Corp. (TDC - Free Report) operates as a hybrid cloud analytics software provider. Its solutions and services comprise software, hardware, and related business consulting and support services to deliver analytics in the analytical ecosystem.

The Zacks Rank #1 company has an expected earnings growth rate of 29.8% for the current year. The Zacks Consensus Estimate for the current year has improved 0.6% over the last 7 days. The stock price has soared 105.9% in the past six months.

Scientific Games Corp. (SGMS - Free Report) is a leading developer of technology-based products and services and associated content for the gaming, lottery, social and digital gaming industries in the United States and globally.

The Zacks Rank #2 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 days. The stock price has rallied 59.5% in the past six months.

Jabil Inc. (JBL - Free Report) provides manufacturing services and solutions worldwide. It operates in two segments — Electronics Manufacturing Services and Diversified Manufacturing Services.

The Zacks Rank #1 company has an expected earnings growth rate of 91% for the current year (ending August 2021). The Zacks Consensus Estimate for the current year has improved by 9.7% over the last 60 days. The stock price has jumped 28.7% in the past six months.

Digital Turbine Inc. (APPS - Free Report) provides media and mobile communication products and solutions for mobile operators, application advertisers, publishers, original equipment manufacturers, and other third parties.

The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending March 2022). The Zacks Consensus Estimate for the current year has improved 25.8% over the last 30 days. The stock price has climbed 27.2% in the past six months.

Brooks Automation Inc. (BRKS - Free Report) provides manufacturing automation solutions for the semiconductor industry and life science sample-based services and solutions for the life sciences market worldwide. It operates in three segments: Brooks Semiconductor Solutions Group, Brooks Life Sciences Services, and Brooks Life Sciences Products.

The Zacks Rank #2 company has an expected earnings growth rate of 71% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 24% over the last 60 days. The stock price has appreciated 22.1% in the past six months.

Cerence Inc. (CRNC - Free Report) provides AI — powered assistants and innovations for connected and autonomous vehicles.

The Zacks Rank #1 company has an expected earnings growth rate of 39.3% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 13.6% over the last 60 days. The stock price has surged 18.3% in the past six months.

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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