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4 Must-Buy S&P 500 Tech Stocks for 2H20

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The S&P 500 index closed at 3,083.76 on Jun 25, up 1.1% on the day. Markedly, the index has surged more than 40% from its Mar 23 low of 2,191.86 and over a month, the benchmark is up 3.1%.

The index’s rally has been primarily driven by unprecedented government stimulus, reopening of U.S. and global economies post coronavirus-induced lockdowns and shelter-in-place guidelines, improving consumer confidence and the upbeat Jun 5 jobs report.

Moreover, a steady decline in jobless claims reflects improving conditions in the U.S. labor market. The Bureau of Labor Statistics June jobs report is now anticipated to show another 3 million job additions to the economy. The unemployment rate is expected to decline to 12.2% from 13.3% in May, which however, is much higher than 3.5% at the end of 2019.

Further, the Trump administration’s draft proposal of a $1-trillion stimulus plan to strengthen infrastructure, including roads, bridges and 5G, is expected to help the economy revive.

Although resurgence in coronavirus infection in some states is worrying, chances of another nationwide lockdown is minimal, which should boost investor optimism.

Technology Momentum to Drive S&P 500

Technology stocks have shown greater resiliency amid the coronavirus pandemic. In fact, technology companies, particularly cloud computing, Internet services and cybersecurity providers, are expected to benefit from the ongoing work from home, web-based learning and remote health diagnosis trends, primarily due to fears of a second wave of coronavirus.

Notably, Microsoft, Apple, Amazon, Facebook and Alphabet now account for nearly 20% of the index’s total market capitalization.

Tech stocks remain attractive owing to consistent digital transformation. Rapid adoption of cloud computing along with the ongoing infusion of AI and machine learning as well as the accelerated deployment of 5G technology, blockchain, IoT, autonomous vehicles, AR/VR and wearables are major tailwinds.

Stay-at-home is now the new normal as we are learning to live with the virus for a significant stretch. This is expected to boost web-based services like e-commerce, contactless payment and delivery.

Here we discuss four S&P 500 technology stocks that have shown great resilience amid the pandemic. Apart from having solid fundamentals, these companies’ debt levels are better than the S&P 500 composite. These factors make them well-poised for further growth in the rest of 2020.

Moreover, these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, each of these stocks has a market cap of more than $10 billion and has outperformed the S&P 500 composite on a year-to-date basis.

Year-to-Date Performance



Top Picks

Fortinet (FTNT - Free Report) is benefiting from dominance in the Unified Threat Management (UTM) space, which is one of the fastest-evolving segments in the network security space. Moreover, this Zacks Rank #1 company is gaining from rising cyber-attack risks that are propelling demand for its FortiMail platform.

Fortinet has no debt on its balance sheet. The consensus mark for this $21.71-billion company’s 2020 earnings stands at $2.81 per share, having moved 8.1% north over the past 60 days. Earnings are expected to increase 13.8% from the prior-year reported number.

Microchip (MCHP - Free Report) is riding on solid demand for its microcontrollers. Moreover, this Zacks Rank #2 company is anticipated to witness strength in the medical end market, driven by growth in demand for hospital equipment. Improving demand across office equipment and communication infrastructures, courtesy of requirement for cloud computing solutions amid the coronavirus crisis-led work-from-home wave also bodes well.

The debt-to-total capital of this $24.21-billion company stands at 34.7%, better than the S&P 500’s 49.1%.

The consensus mark for its fiscal 2021 earnings is pegged at $5.71 per share, having moved 9.4% north in the past 60 days. Earnings are expected to climb 1.6% from the figure reported in the previous year.

ServiceNow (NOW - Free Report) is advancing on the back of rapid adoption of its wide-ranged application-based products across all industries. This Zacks #2 Ranked company’s expanding global presence, strong partnerships and strategic buyouts are expected to aid its financial performance in the rest of 2020.

Debt-to-total capital of this $74.93-billion company currently stands at 34.7%.

The Zacks Consensus Estimate for its 2020 earnings is pegged at $4.24 per share, having been raised 7.3% in the past 60 days. Earnings are expected to increase 27.7% from the figure reported in the previous year.

NVIDIA (NVDA - Free Report) is making progress on the back of sturdy growth in GeForce platform, which is bumping up its gaming revenues. Moreover, an uptick in Hyperscale demand is a tailwind for this #2 Ranked stock’s data-center business. Additionally, this $227.19-billion company has a robust balance sheet, with debt-to-total capital of 36.3%.

The consensus mark for NVIDIA’s fiscal 2021 earnings has risen 8.4% to $7.08 over the past 60 days, suggesting growth of 36.4% from the year-ago reported figure.

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