Mirroring a banner 2017, this year is likely to be a great one for mega tech stocks. Big tech companies are hitting record-highs of late, with shares outpacing the S&P 500 since its nadir on Feb 8.
President Trump has delivered historic relief to tech majors by lowering tax rates. This in turn is boosting profit margins. At the same time, Internet of Things (IoT), which connects various devices to the cloud, is expected to be a huge growth driver for tech majors. Given the bullishness, sound large-cap tech stocks continue to be popular among sell-side analysts.
How Did Tech Bigwigs Fare?
Tech heavyweights continue to influence the U.S. stock market, for good reason. Investing in large-cap tech stocks turned out to be a winning strategy, especially during the recent bout of gyration that sent the stock market into correction.
In fact, the much-loved tech sector rallied 9% year to date, while the broader S&P 500 went up just 3.4%. Mega-sized tech names like the FAANG stocks — Facebook Inc (FB - Free Report) , Apple Inc. (AAPL - Free Report) , Amazon.com, Inc. (AMZN - Free Report) , Netflix, Inc. (NFLX - Free Report) and Google-owner Alphabet Inc (GOOGL - Free Report) — contributed the lion’s share and recently hit intraday record highs.
Amazon, in particular, jumped more than 30% since the start of the year and contributed almost fifth of the gains in the S&P 500, per Silverblatt.
Sell-Side Analysts Back Big Techs
Solid performance by tech bigwigs compelled sell-side analysts to root for them. These stocks are recording rapid earnings and revenue growth that forced brokerage firms to take note.
Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, wrote to investors “net buy ratings of major tech players remain extremely high relative to history.”
Giant Tech Stocks to Make Billions Under Tax Plan
The Republican tax overhaul policy is providing the much-needed windfall to large tech companies. The headline-grabbing move lowered the corporate tax rate from 35% to 21%, while any income brought back from overseas is taxed 8% to 15.5%, instead of the current 35%. This extra cash is helping the companies pursue a combination of share buybacks, dividend payouts and M&A activities.
Let us not forget, tech behemoths Apple, Alphabet, Microsoft Corporation (MSFT - Free Report) , Cisco Systems, Inc. (CSCO - Free Report) and Oracle Corporation (ORCL - Free Report) hold 88% of their money overseas to avoid paying hefty corporate taxes on earnings. Thus, they are positioned to gain immensely under the latest tax reduction plan.
The prospect of a cut in personal taxation is also a major driving force for big tech firms. With more cash in hand, investors have more room to invest.
Tech Companies to Get Bigger
Notable Internet companies like Amazon and Facebook are expected to grow at a fast pace on a significant rise in revenues in the near term. They are expected to take advantage of the large number of advertisements and e-commerce that will still move online.
Substantial growth in cloud computing and the IoT, artificial intelligence, gaming and the launch of complex smartphones and consumer electronics suggest that the good times for tech will keep rolling.
5 Tech Behemoths to Buy
Banking on the aforesaid positives, tech majors are poised to see higher earnings. These stocks have, thus, become a tempting option for investors. We have selected five of them that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Microsoft develops, licenses, and supports software products, services and devices worldwide. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 7.7% over the last 90 days. The stock is expected to return 9.9% this year versus the industry’s estimated return of 9.1%.
Cisco Systems designs, manufactures, and sells Internet Protocol (IP)-based networking and other products related to the global communications and information technology industry. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 4.1% over the last 90 days. The company is expected to return 7.1% this year, in contrast to the industry’s projected decline of 6.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Facebook provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Facebook has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 9.8% over the last 90 days. The company is expected to return 16.7% this year versus the industry’s projected return of 15.8%.
Adobe Systems Incorporated (ADBE - Free Report) operates as a diversified software company worldwide. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 12.6% over the last 90 days. The stock is expected to return 42.9% this year versus the industry’s estimated return of 9.1%.
DXC Technology Company (DXC - Free Report) , together with its subsidiaries, provides information technology services and solutions. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 5.9% over the last 90 days. The company is expected to return more than 100% this year versus the industry’s estimated return of 9.6%.
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