The technology sector has lately been spooked by a spate of negative news from some of its key companies. Among the worst hit were FANG stocks as Facebook’s (FB - Free Report) data scandal raised concerns over stringent regulations for the social media space, and a series of allegations from Donald Trump via Twitter on its business practices spurred Amazon’s (AMZN - Free Report) sell-off.
The attack from industry players like chipmaker Taiwan Semiconductor Manufacturing (TSM - Free Report) and semiconductor-equipment supplier Lam Research (LRCX - Free Report) added to the latest chaos. Taiwan Semiconductor warned of waning mobile demand for the second quarter and thus reduced its sales growth target for this year to 5% from its prior outlook of 5-7% growth while Lam Research offered a disappointing outlook for chip-gear shipments for the rest of the year.
Notably, TSM is Apple's (AAPL - Free Report) biggest supplier and the negative news has taken a toll on shares of the technology giant. Apple shed $60 billion in two days following the news. Several global chipmakers also lost market value, including Analog Devices (ADI - Free Report) , Qualcomm (QCOM - Free Report) and Qorvo (QRVO - Free Report) .
While a number of these headwinds have spread negative sentiments in the space, the rapid adoption of cutting-edge technology and solid corporate earnings are expected to fuel growth. In particular, Q1 earnings from 29.9% of the sector’s total market capitalization reported so far are up 36.3% on 13.7% higher revenues, with 100% of the companies beating on earnings and 85.7% exceeding top-line estimates. Overall, earnings and revenues for Q1 are expected to grow 22.6% and 11.9%, respectively.
Given the optimism, a number of stocks in the sector have seen their Rank surging to the top-most rung in a couple of days. These are also backed by strong fundamentals compared to many others. Any of these could be a compelling choice to beat the ongoing tech turmoil and make for great picks this earnings season. You can see the complete list of today’s Zacks #1 Rank stocks here.
On Assignment Inc. (ASGN - Free Report)
This provides IT and professional services primarily in the technology, creative/digital, engineering, life sciences and government sectors. The stock has an expected earnings growth rate of 34.43%, much higher than the industry average of 24.68%. Sales are also expected to grow at an above-industry average rate of 25.64%. Additionally, the stock seems undervalued with a P/E of 19.97 when compared with industry average of 20.09%. The company came up with quarterly results on Apr 25, wherein it outpaced the Zacks Consensus Estimate for earnings by 10.67% and for revenues by 1%.
ServiceNow, Inc. (NOW - Free Report)
This provides cloud-based services that automate enterprise IT operations. It also delivered a huge earnings beat of 51.35% and revenue beat of 2.83% on Apr 25. The stock has an expected earnings growth rate of 68.40% for this year, much higher than the industry average of 24.68%. Sales are also expected to grow above-industry average at 32.14%.
VeriSign Inc. (VRSN - Free Report)
This is a global leader in domain names and Internet security, enables Internet navigation for many of the world's most-recognized domain names and provides protection for websites and enterprises around the world. The stock saw positive earnings estimate revision of a penny over the past 30 days for the yet-to-be-reported quarter. Analysts raising estimates right before earnings is a pretty good indicator of some favorable trends for the company. The company is slated to release its result on Apr 26 after market close.
VeriSign has a Zacks Rank #1 and has an Earnings ESP of +2.83%, indicating high chances of beating estimates this quarter. Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Seagate Technology plc (STX - Free Report)
This company offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives. It saw positive earnings estimate revision of a couple of cents over the past seven days for the yet-to-be-reported quarter (results expected on May 1). It has an Earnings ESP of +3.43%. The stock seems attractively valued at P/E of 11.82, lower than the industry average of 15.81.
SMART Global Holdings Inc. SGH
This company is a designer, manufacturer and supplier of electronic subsystems to OEMs and is engaged in the computer, industrial, networking, telecommunications, aerospace and defense markets. It has a whopping earnings growth estimate of 174.78% for this fiscal year, much higher than the industry growth of 15.31%. Revenue growth of 841.99% is also projected to be above the industry growth of 7.12%. Further, SGH is a cheap choice at present given its P/E ratio of 6.28 versus industry’s P/E of 16.89.
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