Technology stocks are anticipated to see a sluggish earnings season, primarily due to continued softness in the semiconductor space.
Semiconductors, which are the building blocks of most emerging technologies like AI and IoT, reported weak sales on a year-over-year basis in October and November. Moreover, while October sales improved on a month-over-month basis, November sales declined.
The sluggishness can largely be associated with higher tariffs on electronics, thanks to the U.S.-China trade tussle. Further, lower memory chip prices are expected to have affected the growth of companies like Samsung.
Notably, the Korean giant provided sluggish guidance for the fourth quarter. Per a CNBC report, the company’s estimated consolidated operating profit of 7.1 trillion Korean won ($6.02 billion) indicates a decline from 10.80 trillion Korean won Samsung posted in the year-ago quarter.
Notably, the World Semiconductor Trade Statistics (WSTS) organization projects annual global semiconductor sales to decrease 12.8% in 2019.
Additionally, the restriction on sales to Huawei is expected to have dampened results of companies like Flex and Qorvo.
Nevertheless, growth in fourth-quarter PC shipments bodes well for companies like Lenovo, HP and Dell.
Although Apple’s (AAPL - Free Report) MacBook shipment continued to decline per IDC data, the iPhone maker is expected to have benefited from strong demand for Apple Watch 5, AirPods and App Store sales.
Growth Drivers Aplenty
Tech companies are expected to benefit from the rapid adoption of cloud computing, AI, IoT, cloud-based gaming, wearables and drones.
Furthermore, solid demand for AI-infused virtual assistants continues to drive demand for smart speakers like Amazon Echo and Google Home.
Moreover, the increasing preference for online gaming, music and video-streaming services is a major growth driver. Further, the proliferation of IoT, which is facilitating connected devices and smart homes, is a key catalyst.
The accelerated deployment of 5G technology — the next-generation of wireless connectivity — is also likely to spur growth for tech companies this earnings season.
How to Make the Right Pick?
With the presence of several industry players, finding the technology stocks having the potential to beat earnings estimates can be daunting. Our proprietary methodology, however, makes it fairly simple.
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 is 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%.
Given below are six technology stocks that have the right combination of elements to post an earnings beat this reporting cycle:
Andover, MA-based MKS Instruments (MKSI - Free Report) has an Earnings ESP of +8.41% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is scheduled to report fourth-quarter 2019 results on Jan 28. The consensus mark for earnings has increased 1.9% to $1.07 per share over the past 30 days.
Hong Kong-based Silicon Motion Technology (SIMO - Free Report) is scheduled to report fourth-quarter 2019 results on Feb 6.
The company sports a Zacks Rank #1 and has an Earnings ESP of +7.36%.
The Zacks Consensus Estimate for earnings rose 5% to 84 cents per share over the past month.
San Jose, CA-based Synaptics (SYNA - Free Report) flaunts a Zacks Rank #1 and an Earnings ESP of +0.69%. The company is scheduled to report second-quarter fiscal 2020 results on Feb 6.
The Zacks Consensus Estimate for earnings has decreased 1.4% to $1.44 per share over the past 30 days.
Israel-based Perion Network (PERI - Free Report) currently carries a Zacks Rank #1 and an Earnings ESP of +22.58%.
The company is set to report fourth-quarter 2019 results on Feb 12. The consensus mark for earnings has surged 45.5% to 16 cents per share over the past 30 days.
Cupertino, CA-based Apple is set to report first-quarter fiscal 2020 results on Jan 28. The company has an Earnings ESP of +4.08% and a Zacks Rank #2.
The Zacks Consensus Estimate for earnings has increased 0.4% to $4.53 per share over the past 30 days.
Apple Inc. Price and EPS Surprise
Milford, MA-based Waters Corporation (WAT - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.83%. The company is scheduled to report fourth-quarter 2019 results on Feb 4.
The Zacks Consensus Estimate for earnings has increased by a penny to $3.02 per share over the past 30 days.
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