The rally in the Nasdaq Composite has continued, with the index scoring a record close on Monday. Optimism over an economic rebound in China, along with strong U.S. services industry activity data in June, mainly drove the market rally. Monday’s rally reflects that investors are brushing off worries about rising COVID-19 cases, which might disrupt economic recovery in the United States.
The index gained 2.2% yesterday, marking the 14th straight positive in last 16 trading days. The tech-laden index also outperformed the Dow Jones and the S&P 500, which closed up at 1.8% and 1.6% yesterday, respectively. Year to date, Nasdaq has appreciated 16.3%, while the Dow Jones and the S&P 500 indices are down 7.9% and 1.6%, respectively.
Nasdaq Outperforms on Tech Stocks Rally
Monday’s rally was driven by the technology sector that includes the top FAANG stocks, Microsoft and Tesla (
TSLA Quick Quote TSLA - Free Report) . Shares of Amazon ( AMZN Quick Quote AMZN - Free Report) crossed the $3,000 mark for the first time ever, while Tesla stock jumped 13.5% yesterday.
Notably, the U.S. stock market has been in a recovery mode for the past three months, after crashing in March due to the pessimism surrounding the coronavirus crisis. However, it is the technology sector which has played a crucial role in Nasdaq’s faster recovery compared with the Dow Jones and the S&P 500.
Tech stocks constitute more than 50% of weightage in the Nasdaq Composite index. The Technology Select Sector SPDR (
XLK Quick Quote XLK - Free Report) , the most important component of the broad market index, has a positive year-to-date return of 16.8%. What’s Driving the Tech Stocks Rally?
The technology sector has been strongly resilient to the impact of coronavirus-induced disruptions, aided by advanced technologies, including Artificial Intelligence (AI), Machine Learning (ML), Augmented Reality (AR), cloud computing, blockchain and robotics.
The adoption rate of Internet-based services and apps has been increasing rapidly as people are compelled to stay indoors. Moreover, the global work-from-home wave is bolstering demand for advanced technology-based virtual meetings and conference tools.
Additionally, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage. All these, in turn, are fueling growth for high speed Internet services.
Moreover, the rising demand for robust communication networks is another positive. Further, the growing proliferation of AI technology, and cloud computing products and services in managing this pandemic situation is a tailwind. All these trends are stoking demand for semiconductor chips.
Investment in Tech Stocks Holds Promise
Considering the healthy growth prospects of tech companies, investing in this space for long-term gains holds promise. Amid the economic and financial instabilites, it is a prudent idea to pick solid growth companies as these are financially stable, reaping profits in established markets. These stocks, with their healthy fundamentals, help investors hedge their investments from any economic downturns.
Furthermore, the technology sector is likely to benefit the most from the reopening of the U.S. and global economies after two-three months of partial or full lockdowns.
Here we have zeroed in on five Nasdaq-traded tech stocks that are well poised to benefit from this space’s stellar 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.
Our Picks FormFactor ( FORM Quick Quote FORM - Free Report) is benefiting from solid demand for both Foundry & Logic probe cards. Growing probe-card demand, customer node transitions and new design releases are major positives for this Zacks Rank #2 company. Furthermore, its increasing focus on Mobile SoC and Mobile DRAM probe-card segments is another key growth driver.
The company has a Growth Score of A. The Zacks Consensus Estimate for 2020 earnings has been revised 14.7% upward to $1.09 per share in the past 60 days, suggesting year-over-year growth of 4.8%.
FormFactor, Inc. Price and Consensus Rambus ( RMBS Quick Quote RMBS - Free Report) is gaining on the growing momentum of tokenization solutions. In addition to mobile payments and retail, the company has expanded tokenization offerings in markets like account-based payments, e-commerce and blockchain. This Zacks #2 Ranked company has also rolled out Vaultify Trade that provides bank-grade tokenization for blockchain.
Currently, Rambus has a Growth Score of A. The consensus mark for the ongoing year’s earnings has been revised upward by 7.7% in the past 60 days to 98 cents per share, suggesting strong improvement from the loss of 7 cents reported in 2019.
Rambus, Inc. Price and Consensus KLA-Tencor Corporation ( KLAC Quick Quote KLAC - Free Report) is benefiting from healthy demand for process diagnostics and control equipment and yield management solutions required for the fabrication of semiconductor-integrated circuits or chips. This Zacks Rank #2 company enjoys a strong competitive position in several chip equipment areas, including PCB (printed circuit board) and display. At the same time, KLA-Tencor has prominent exposure to 5G smartphones, 5G infrastructure equipment and autonomous driving sensors trending in the technology industry.
KLA-Tencor has a Growth Score of A. The consensus mark for current-year earnings has moved 1.2% north over the past 60 days to $9.86 per share, calling for year-over-year growth of 16.6%.
KLA Corporation Price Dropbox ( DBX Quick Quote DBX - Free Report) is riding on growing demand for its team collaboration tools through which users can share files, photos, videos, songs and spreadsheets. This Zacks Rank #2 company’s solid focus on product innovation and introduction of features like Dropbox Passwords, Vault and Computer backup are anticipated to expand its user base.
Further, integration with leading applications like Zoom Video, Slack and Atlassian will likely expand the Dropbox paying user base.
Dropbox currently has a Growth Score of B. The consensus mark for current-year earnings has moved 5.7% north to 74 cents per share in the past 60 days. Earnings are expected to jump 48%, year on year.
Dropbox, Inc. Price and Consensus Datadog ( DDOG Quick Quote DDOG - Free Report) has shown robust resiliency amid the coronavirus outbreak. It has gained from exposure to gaming, food delivery, e-commerce and streaming sectors that actually benefited from the pandemic-led lockdowns and shelter-in-home guidelines. The cloud-based monitoring and analytics platform provider has raised the 2020 guidance on solid demand for its solutions.
Datadog currently carries a Zacks Rank of 2 and has a Growth Score of B. The consensus estimate for this year’s earnings has been revised upward in the past 60 days to earnings of 3 cents per share from a loss of 6 cents. The earnings estimate reflects significant improvement from the loss of a penny reported in 2019.
Datadog, Inc. Price and Consensus Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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