Back to top

Nasdaq Sees Best Stretch Since Last October: Top 5 Picks

Read MoreHide Full Article

The tech-laden Nasdaq Composite has been making a steady climb throughout this year, recently recording its longest winning stretch since last October by rising for the eighth straight session.

Thus, when it comes to equity markets, Silicon Valley is richer than ever and investing in Internet and technology companies and chipmakers makes more sense now. But, if their high valuations are a concern, trust their profits to rise higher in the days ahead.

Nasdaq Extends Winning Streak to 8th Session

The Nasdaq Composite index saw its eighth straight session of gains on Aug 9, a sign that investors are retaining their faith in high-flying tech stocks. The Nasdaq edged up 3.46 points to 7,891.78, just 41 points short of the record set last month.

For the year, Nasdaq is up 14% and is among the best performers in the market. The tech-laden index has seen more than double of the 6.7% gain for the S&P 500 and 3.2% for the Dow Industrials.

Tech Earnings Solid

The Nasdaq, by the way, is synonymous with pricey tech stocks during the Internet boom of the late 1990s. Of late, however, the indexes rally has been fueled by tech companies posting solid growth in profits and revenues. Total earnings for the tech sector are up 35% on 12.9% higher revenues in the second quarter, with 89.7% beating earnings estimates and 87.2% trumping revenue expectations.

In any case, the overall tech sector is expected to notch double-digit gains this earnings season. And if that happens, it would be the fourth successive quarter that the Information Technology sector of the S&P 500 has produced earnings growth of 20% or more. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, had written to investors that “net buy ratings of major tech players remain extremely high relative to history.”

Government Policy, Fundamentals Encourage

The Republican tax overhaul policy is providing the much-needed windfall to tech companies. The extra cash from tax cuts is helping tech companies pursue merger and acquisition activities. The prospect of a cut in personal taxation is also a major driving force for tech firms. With more cash in hand, investors have more scope to invest. At the same time, Internet of Things, which connects various devices to the cloud, is expected to be a huge growth driver for tech majors.

Chip makers, for now, are making giant strides as chips are in demand for some of the fastest growing tech industries in the world like e-sports and crypto mining. E-sports, a multiplayer video game for professional gamers, need thousands of semiconductor chips for production. These chips are an essential part of crypto mining as they provide the processing power needed for decoding blockchain algorithms.

Apple & Amazon Back Tech Sector

Many investors, in the meantime, are banking that further gains in the Nasdaq will be driven by tech behemoths Apple Inc. (AAPL - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Apple recently hit the $1-trillion market value, Amazon accounts for nearly half of U.S. online sales.

Apple became the world’s first trillion-dollar company after it reported strong earnings for the quarter ended Jun 30. It’s earnings per share grew 40% year over year and revenues increased 17%.

Growth in products like Apple Watch, AirPods, Beats headphones and iPhones helped the Cupertino-based company report stellar numbers. By the way, Apple’s guidance for the upcoming quarter is also above Wall Street predictions (read more: Apple Hit $1 Trillion: Growth In Asia & China Key Going Forward).

Amazon, in the meantime, came out with earnings for the quarter ended June 2018 of $5.07 per share, beating the Zacks Consensus Estimate of $2.49. This compares to earnings of 40 cents per share a year ago. Net sales increased 39% year over year, with Amazon Web Services revenues totaling $6.11 billion, up 49% from the year-ago period.

CEO Jeff Bezos already updated investors on a number of key milestones in his annual letter to shareholders, but, market pundits said that Prime subscriber numbers were the most encouraging. In fact, the total count of Amazon Web Services active users, including Prime numbers, was significantly up from last year.

5 Solid Picks

Investors, thus, should double down on the hottest tech stocks on the index as they continue to scale higher on favorable government policies and earnings strength. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Apple manufactures, and markets mobile communication and media devices, and personal computers. Currently, the company has a Zacks Rank #2. In the last 60 days, 10 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 2.5% in the same period. The stock’s expected earnings growth rate for the current quarter and year are 32.9% and 26.8%, respectively (read more: Apple Stock Remains A Buy Even At New High).

Amazon.com engages in the retail sale of consumer products and subscriptions in North America and internationally. Currently, the company has a Zacks Rank #1. In the last 60 days, 18 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings soared 38.8% in the same period. The stock’s expected earnings growth rate for the current quarter and year are 517.3% and 279.6%, respectively.

Adobe Systems Incorporated (ADBE - Free Report) operates as a diversified software company. The company currently has a Zacks Rank #2. In the last 60 days, 11 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 3.9% in the same period. The stock’s expected earnings growth rate for the current quarter and year are 52.7% and 54.1%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Micron Technology, Inc. (MU - Free Report) provides semiconductor systems. Currently, the company has a Zacks Rank #1. In the last 60 days, eight earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 1.6% in the same period. The stock’s expected earnings growth rate for the current quarter and year are 63.4% and 136.3%, respectively (read more: Micron's Blowout Earnings Drive Chipmakers: 5 Top Picks).

Intel Corporation (INTC - Free Report) manufactures, and sells computer, networking, data storage, and communication platforms. Currently, the company has a Zacks Rank #1. In the last 60 days, 15 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 7.8% in the same period. The stock’s expected earnings growth rate for the current quarter and year are 13.9% and 19.4%, respectively.            

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>



More from Zacks Analyst Blog

You May Like