The second-quarter 2017 earnings season is in its initial stage with just 23 S&P 500 members or 4.6% of the index’s total membership reporting their quarterly results as of Jul 7, according to the latest Zacks Earnings Preview report.
Per the Preview article, the trend this earnings season indicates that we may finally see back-to-back four quarters of earnings growth in the Technology sector, after several quarters of decline. The report projects that earnings for the sector will improve 10.1% from the year-ago period on 6% higher revenues.
The strong growth projections may be mainly attributed to the growing adoption of cloud computing, cloud infrastructure build-out, Big Data, flash storage, networking, security, 3D printing, wearable devices and Internet of Things (IoT) at home, office and car. Apart from this, modestly improving PC shipments also raise expectations.
Additionally, anticipation of a recovery in IT spending in 2017, after two consecutive years of decline, according to a research report of Gartner Inc. (IT), bodes well for the technology sector. Gartner projects IT spending to increase 1.4% year over year to $3.41 trillion in 2017. Notably, in 2015 and 2016, worldwide spending declined 5.5% and 0.6%, respectively.
The optimism surrounding the technology sector is well reflected in its year-to-date performance. The sector has outperformed the S&P 500 in the aforesaid period. Notably, the Technology Select Sector SPDR ETF (XLK) returned 14.7% in the year-to-date period compared with the S&P 500’s gain of 8.3%.
The technology space continues to be investors’ favorite due to its dynamic nature. It is predicted to grow faster than ever before as evident from Gartner’s latest forecasts, as well as the improving U.S. economic data.
The sector is poised to witness tremendous growth this earnings season and there is a high probability that various tech stocks will report better-than-expected results. It commonly happens that an earnings beat boosts investors’ confidence in the stock, which is reflected in its rapid price appreciation.
Therefore, now it is wise to invest in such stocks, in order to catch the post-earnings rally. However, this is easier said than done. Striking the right chord needs a fair amount of luck.
Then How to Make the Right Pick?
With the existence of a number of companies in the tech sector, finding the right stocks that have the potential to beat on earnings could be a daunting task. Our proprietary methodology, however, makes it fairly simple for you. You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks which have the best chances to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here, we would like to highlight some stocks in the technology sector which are likely to beat estimates this earnings season.
6 Prominent Picks
Cypress Semiconductor Corporation (CY - Free Report) is one such technology stock that investors can opt for. The stock boasts a Zacks Rank #1 and has an Earnings ESP of +11.11%. Last quarter, the company posted a whopping positive earnings surprise of 300% and has long-term earnings growth rate of 10%.
MSCI Inc. (MSCI - Free Report) is a solid bet which carries a Zacks Rank #2 and has an Earnings ESP of +1.12%. The company delivered an outstanding average positive earnings surprise of approximately 6.3%, over the trailing four quarters and has long-term earnings growth expectation of 12.5%.
One can also invest in TE Connectivity Ltd. (TEL - Free Report) , which carries a Zacks Rank #2 and has an Earnings ESP of +2.56%. The company registered an average positive earnings surprise of 8.94% over the trailing four quarters and has long-term earnings growth rate of 9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another stock that you may consider is WESCO International, Inc. (WCC - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +1.02%. The stock has surpassed the Zacks Consensus Estimate thrice while has missed the same on one occasion in the trailing four quarters. It has an average positive earnings surprise of 1.86% and has long-term earnings growth expectation of 11.7%.
We also suggest investing in Check Point Software Technologies Ltd. (CHKP - Free Report) . The company has an Earnings ESP of +0.90% and carries a Zacks Rank #3. The stock has surpassed the Zacks Consensus Estimate thrice and matched on one occasion, over the trailing four quarters. It has an average positive earnings surprise of 5.64% and has long-term earnings growth expectation of 9.6%.
Investors can also count on Woodward Inc. (APTI - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +1.30%. The stock has surpassed the Zacks Consensus Estimate thrice and missed on one occasion, over the trailing four quarters. It has an average positive earnings surprise of 12.49% and has long-term earnings growth expectation of 10.5%.
These stocks have managed to grab the spotlight with notable performances. These factors make us more or less sure that investing in these stocks will yield strong returns for your portfolio in the short term.