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Nasdaq Moves Above 6000: 4 Great Top-Ranked Tech Choices

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The Nasdaq breached a major barrier on Tuesday to hit the 6,000 mark for the first time ever. Strong earnings results from several major companies was one of the factors which helped the tech heavy index touch this key level.

The index has crossed this milestone nearly 17 years after breaching the 5,000 mark. The previous record came during the heydays of the dotcom boom, in Mar 2000. Subsequently the bubble popped for tech stocks, much like their fate during the recession of 2008.

President Trump’s proposals to stimulate the economy were also powering the index upward on this day. Trump is expected to unveil a new tax plan this week, and the opportunity to bring back large sums of cash stashed abroad looks particularly attractive to tech majors. Picking tech stocks with strong fundamentals looks like an attractive proposition at this point.

New Tech Trends, Strong Earnings Powering Nasdaq

On Tuesday, the Dow also surged by more than 200 points due to a stellar earnings show of several major components. Four of its five components reporting earnings on this day exceeded expectations, which include the likes of Caterpillar (CAT - Free Report) , DuPont (DD - Free Report) and McDonald’s (MCD - Free Report) . For the Nasdaq, however, the day’s gains of around 41 points were relatively milder despite the fact that it crossed a major milestone.

Performance of Key Nasdaq Components (Year to Date)

In fact, the tech heavy index’s rise can be attributed to sustained growth in sales and earnings by a small clutch of companies. The FANG stocks, Facebook , Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) , and Alphabet GOOGL, along with Microsoft (MSFT - Free Report) , tower over the rest of the index’s components. All of them have turned in exceptional earnings and sales performances over the last few years, which in turn have led to the index’s continual ascent.

The success of these companies and consequently the index itself can be attributed to how certain tech trends have come to dominate the collective global mindscape. The rising popularity of smartphones, e-commerce, social networks and cloud computing have also fueled the index’s rise. That this has continued into 2017 is evident from the fact that the Nasdaq is currently up nearly 12% year to date.

Trump’s Promises Boosting Tech Fortunes

President Trump has dominated this week’s headlines with a promise to introduce new tax proposals. The new administration is expected to unveil a plan to reduce corporate taxes by 15% on Wednesday.

This has also been boosting stocks, adding to the broader “Trump Rally” which has continued despite minor pauses ever since the presidential election’s results were revealed last November. Of course, the Nasdaq’s upsurge can be viewed as part of broader market gains, but tech companies may be expecting more specific benefits from a Trump administration.

On the campaign trail, President Trump’s adversarial stance towards tech companies was clearly visible. His views on trade, immigration and several related matters are at complete variance with much of the tech industry. However, Oracle (ORCL - Free Report) , Cisco (CSCO - Free Report) and of course, Apple and Microsoft stand to gain heavily from Trump’s proposal to repatriate foreign cash reserves at a lower rate of tax.

Even though this proposal will be for one single occasion, the stakes involved are pretty substantial. Apple’s cash reserves alone amount to $246 billion, with at least $230 billion parked overseas. Taken together, Cisco, Oracle, Google and Microsoft have cash reserves of nearly $340 billion, the majority of which is also held overseas.

Our Choices

Crossing the 6,000 mark is an important milestone for market watchers, but it is necessary to consider the fact that yesterday’s point wise gain for the Nasdaq clocks in at only around 41. The index’s ascent is not a sudden surge, but rather a steady uptrend built on the tech sector’s successes over the last few years. With upcoming government policy likely to be favorable to tech majors, this is as good a time as any to invest in the sector.

This is why tech stocks which have made steady gains year to date would make great additions to your portfolio. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM score. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Stock Picks (Year to Date)

Applied Optoelectronics, Inc. AAOI designs, develops and manufactures advanced optical devices, packaged optical components, optical subsystems, laser transmitters and fiber optic transceivers.

Applied Optoelectronics has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The stock has returned 110.8% year-to-date and gained 1.5% on Tuesday

Ultra Clean Holdings, Inc. (UCTT - Free Report) supplies wafer fabrication equipment and services to the semiconductor industry.

Ultra Clean Holdings has a VGM Score of B. The company has expected earnings growth of 82.1% for the current year. Its earnings estimate for the current year has improved by 2% over the last 30 days. The stock has returned 82.6% year-to-date and gained 4.6% on Tuesday.

Seagate Technology plc (STX - Free Report) is the second-largest manufacturer of hard disk drives (HDDs) in the U.S.

Seagate Technology has a VGM Score of A. The company has expected earnings growth of 99.5% for the current year. Its earnings estimate for the current year has improved by 0.2% over the last 30 days. The stock has returned 32.4% year-to-date and gained 2.50% on Tuesday.

Western Digital Corporation (WDC - Free Report) designs, develops, manufactures and markets a broad range of HDDs used in desktop PCs, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.

Western Digital has a VGM Score of A. The company has expected earnings growth of 40.6% for the current year. Its earnings estimate for the current year has improved by 1.8% over the last 30 days. The stock has returned 27.9% year-to-date and gained 0.9% on Tuesday.

The Best & Worst of Zacks

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