The coronavirus pandemic is wreaking havoc on global trade, investments, tourism and supply chains. Moreover, the virus-led sell-off has terminated the 10 years of the U.S. market expansion which began post the 2007-2009 financial crisis.
Nonetheless, among the major U.S. indices, the Nasdaq Composite has been, remarkably, the least affected by the coronavirus-led bloodbath.The index has lost 13.4% in the year-to-date (YTD) period, while its major competitive trading U.S. indices — the Dow Jones and the S&P 500 — have declined 21.8% and 18.7%.
The maximum weightage of Tech stocks in its components has safeguarded the Nasdaq Composite to some extent. Notably, tech companies constitute more than 50% weightage in the index.
Though the coronavirus outbreak has affected every sector, the U.S. tech sector has been more resilient compared with others. The Technology Select Sector SPDR Fund (XLK - Free Report) is down 14.2% YTD, while the Energy Select Sector SPDR Fund, the Financial Select Sector SPDR Fund and the Industrial Select Sector SPDR Fund have lost 52.8%, 31.7%, and 27.7%.
Among the Nasdaq’s 100 components, only 16 stocks have registered positive returns, of which six are from the Computer and Technology sector.
What’s Behind the Tech Sector’s Outperformance?
The coronavirus outbreak has, surprisingly, opened up newer avenues of growth for tech companies. The coronavirus-led global lockdown is fueling demand for PCs, notebooks and peripheral accessories, as more and more workers and students work and learn from home.
The work-and-learn-from home necessity is also stoking demand for cloud storage. Furthermore, the lockdown has bolstered the usage of online and e-commerce services globally. Therefore, data-center operators are enhancing their capacities to accommodate the demand spike for cloud services. (Read More: 6 Remote-Working Software Stocks to Ride on Virus-Led Lockdowns)
Furthermore, the long-term growth prospects of tech companies look promising owing to continuous digital transformations. Rapid adoption of cloud computing, along with ongoing integration of AI and machine learning, has been a major growth driver.
The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to spur further growth. Moreover, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.
What Should Investors Do?
Though the U.S. government is coming up with relief packages, the underlying problem, the pandemic, continues to spread its tentacles further, with no signs of waning any time soon. The associated global economic and financial impact doesn’t seem to have peaked yet. Therefore, we expect market volatility to remain in the weeks to come.
Nevertheless, we believe fundamentally-strong companies have greater possibilities of bouncing back once the impact of the coronavirus outbreak dissipates. And considering Tech companies’ growth prospects, it makes sense to invest for long-term gains.
Here, we have zeroed in on five Nasdaq-traded tech stocks that are well poised to benefit from this space’s solid growth prospects.
These stocks also have favorable combinations of a Growth Score of A or B, and a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per the Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.
Dropbox (DBX - Free Report) , which currently sports a Zacks Rank #1, is poised to benefit from shift in demand trend owing to the coronavirus outbreak. The company, which has a Growth Score of A, offers platform that enables users to store and share files, photos, videos, songs and spreadsheets.
Due to the global lockdown situation, workers now need to work from home which is stoking demand for cloud storage. Moreover, the company is benefiting from evolving workspace demands for seamless enterprise communication tools. Further, integration with leading applications like Zoom Video, Slack and Atlassian will likely expand the Dropbox paying-user base over the long run.
The company’s earnings are expected to soar 42% year over year to 71 cents per share in 2020.
Synaptics (SYNA - Free Report) is well poised to capitalize on its market-leading position for both touchpads and secure fingerprint sensors amid upbeat trends in PC shipments. New design wins across all OEM leaders, including Dell, HP and Lenovo, deserve a special mention.
Further, incremental adoption of this Zacks #1 Ranked company’s edge SoCs, integrated with AI and embedded neural networks capabilities for smart video and audio devices, is anticipated to favor its performance in the days ahead.
The stock has a Growth Score of B. Additionally, Synaptics’ earnings are likely to jump 41% year on year to $5.64 per share in fiscal 2020.
NVIDIA (NVDA - Free Report) is a global leader in providing high-performance graphic processing unit or GPU for PCs, notebooks, gaming consoles and data centers. The work-and-learn-from home necessity is driving demand for PCs and cloud-based services, which will benefit NVIDIA.
In addition, this Zacks Rank #2 company’s GPU used for medical research is likely to get a boost owing to the coronavirus outbreak. NVIDIA’s Parabricks tool will be useful for researchers who are working to combat the current crisis. Through this GPU-accelerated genome analysis toolkit, researchers can accomplish analysis process in just a few hours, which previously took many days.
The stock, which has a Growth Score of A, is likely to witness a 32% year-over-year jump in its fiscal 2021 earnings and reach $7.65 per share.
At present, FireEye (FEYE - Free Report) carries a Zacks Rank of 2 and has a Growth Score of A. As more and more organizations start to work remotely amid the coronavirus crisis, their cybersecurity needs are likely to spike.
Notably, the rising number of work-from-home employees is aggravating security lapses, triggering risks of hacking and phishing scams using coronavirus as content of the subject. Moreover, usage of own devices and equipment that are not properly configured or can be infected with malware during teleworking further raises possible security breaches for enterprises.
FireEye’s earnings are likely to quadruple in 2020 to 20 cents per share compared with the 5 cents in 2019.
Akamai (AKAM - Free Report) is anticipated to benefit from robust growth of cloud-security solutions. Moreover, strong performance of its cloud-security business and growth in Media & Carrier Division is a positive. Solid demand for Kona Site Defender, Prolexic Solutions, new Bot Manager Premier, and Nominum Services are also expected to drive the top line in the upcoming days. The traction gained by Enterprise Application Access and Enterprise Threat Protector is noteworthy.
Furthermore, increasing adoption of mobile data/apps on growing mobile-data traffic bodes well. Strong traffic growth in video downloads, driven by coronavirus-induced stay-home wave, is a tailwind, for this Zacks #2 Ranked company.
The stock, which has a Growth Score of B, is likely to witness an 8.9% year-over-year increase in ongoing-year earnings and reach $4.89 per share.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>