The coronavirus pandemic has been wreaking havoc on global trade, investments, tourism and supply chains for quite some time now. 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. The three major stock indices — the Dow, the S&P 500 and the Nasdaq Composite — have plunged 20.5%, 17.6% and 11.8%, respectively, in the year so far.
Though the virus outbreak has had a sector-wide impact globally, the U.S. tech sector has been more resilient compared with other sectors. The Technology Select Sector SPDR Fund (XLK - Free Report) depreciated 8.7% in the year-to-date (YTD) period, while Energy Select Sector SPDR Fund, Financial Select Sector SPDR Fund, and Industrial Select Sector SPDR Fund have lost 47.7%, 31.6%, and 26.1%.
What Makes the Tech Sector More Resilient?
This sector’s resiliency can be attributed to the impressive long-term growth prospects of tech companies. 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, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.
In addition, the coronavirus outbreak has, surprisingly, opened up newer avenues of growth for semiconductor companies. Shift in consumer preference for Internet-based services, owing to the increase in social-distancing practices, has propelled demand for PCs, notebooks and peripheral accessories. Furthermore, the growing demand for software and hardware that facilitates work-from-home setting is a key catalyst. (Read More: 6 Remote-Working Software Stocks to Ride on Virus-Led Lockdowns)
Additionally, tech companies are cash rich, which provides the cushion to remain afloat amid adverse business environment. Per their latest quarterly results, the FAAMG stocks (Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google) have a cumulative cash and short-term investments of more than $460 billion.
Considering growth prospects of tech companies, it makes sense to invest in the space for long-term gains. One can opt for tech stocks which have weathered the coronavirus impact so far and have robust fundamentals. These stocks have greater possibilities to rise further once normalcy resumes.
However, picking the right stock could be tedious.
Strategy to Pick Stocks
With the help of our Zacks Stock Screener, we’ve cherry picked four top-ranked technology stocks that have weathered the coronavirus storm. Additionally, each of these stocks currently carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
To narrow down the list, we have selected those with a Growth Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
The 21Vianet Group (VNET - Free Report) stock, which has soared 104.8% year to date, is gaining from shift in demand trend owing to the coronavirus outbreak. This Zacks #2 Ranked company operates as a carrier-neutral internet data-center services provider in China. The stock has a Growth Score of A.
Due to the global lockdown situation, workers and students now need to work and learn from home. The work-and-learn-from-home necessity is stoking demand for cloud storage. Furthermore, the lockdown has bolstered the usage of online and e-commerce services globally, thereby driving demand for data-center services.
Cogent Communications Holdings (CCOI - Free Report) is poised to benefit from the rising necessity for work-and-learn-from-home settings amid the coronavirus crisis. This Zacks Rank #2 company offers low-cost high-speed Internet access, private network services and colocation center services. Ongoing digital transformation and rapid adoption of cloud services are key catalysts for long-term growth. The stock, which has a Growth Score of A, has gained 32.1%, in the YTD period.
CrowdStrike Holdings (CRWD - Free Report) , which provides cloud-delivered endpoint protection, is poised to benefit from the work-and-learn-from-home trend. As more and more organizations start to work remotely amid the crisis, their cybersecurity needs are likely to spike. Notably, the rising number of work-from-home employees is aggravating security lapses, inducing risks of hacking and phishing scams using coronavirus as content of the subject. In addition, 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.
Currently, CrowdStrike carries a Zacks Rank of 2 and has Growth Score of A. The stock has outperformed major U.S. indices, rallying 18.4% in the year so far.
Akamai Technologies Inc. (AKAM - Free Report) is poised to benefit from mounting demand for in-house entertainment and video-streaming services due to the coronavirus-induced stay-home wave. The company 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.
Akamai currently carries a Zacks Rank #2 and has a Growth Score of A. Year to date, the stock has appreciated 13.2%.
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