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Technology Sector Regains Momentum in November: 5 Top Picks
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Wall Street stayed in positive zone in the first 11 months of 2020 despite the pandemic. The predominant force, behind Wall Street's impressive recovery from the short coronavirus-induced bear market was the technology sector.
However, in the last two months, the technology sector lost its pace of growth due to market participants' concern over the sector's overvaluation and the possibility of a COVID-19 vaccine that shifted investors' preference from growth-oriented technology stocks to cyclical reopening stocks.
Nevertheless, the technology sector has gathered pace once again in November. Several economic data revealed that coronavirus-led economic devastations were not as severe as expected in March-April and growing demand for more advanced tech products across the world reset the northbound journey of technology stocks in November.
Technology Stocks Revive in November
It was the technology sector that had helped Wall Street to exit a coronavirus-induced short bear market and form a new bull market. However, in the due course of market's V-shaped recovery from its trough on Mar 23, technology stocks got overvalued, as said by many financial experts.
The Technology Select Sector SPDR (XLK), the largest sector of the 11-broad sectors of the S&P 500 Index, rallied an astonishing 76% from Mar 23 to Aug 31. However, in September and October the XLK tumbled 5.3% and 5%, respectively.
However, the sector turned positive in November and has rallied 10.6% month to date. Moreover, the tech-heavy Nasdaq Composite has advanced 11.9% month to date after remaining in the negative territory in last couple of months.
Year to date, the XLK has soared 33.8% while the benchmark itself has advanced 12.6%. The Nasdaq Composite has jumped more than 36%. Notably, in 2019, the Nasdaq Composite rallied 35.2%, marking its best performance in six years. If the tech-laden index maintains its pace in December, it may easily surpass last year's record-breaking performance.
Tech Momentum Likely to Continue
In the long term, the technology sector will remain the predominant force to drive the market. We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, have boosted the overall space.
As social distancing is keeping near and dear ones away, people, especially the citizens of the emerging and less-developed countries, are reaching out more than ever with smartphones, tablets or notebooks.
The thrust for digitization is likely to come from two sides. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.
Our Top Picks
We have narrowed down our search to five technology stocks based on four criteria. First, we have selected tech behemoths (market capital > $10 billion) as these companies have a well-established business model and strong brand value. Second, these stocks have climbed more than 25% month to date.
Third, all these stocks have strong growth potential and witnessed robust earnings estimate revisions in the last 30 to 60 days, indicating solid business prospects. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks month to date.
The Trade Desk Inc. (TTD - Free Report) is a provider of technology platform for advertising. Ad buyers create, manage and optimize data-driven digital advertising campaigns using its cloud-based technology platform.
The Zacks Rank #1 company has an expected earnings growth rate of 27.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 48.3% over the last 30 days. The stock has soared 54.1% month to date.
Lam Research Corp. (LRCX - Free Report) supplies wafer fabrication equipment and services to the semiconductor industry. Its products are utilized by semiconductor manufacturers in front-end and WLP processes, creating memory, microprocessors, and other logic integrated circuits.
The Zacks Rank #2 company has an expected earnings growth rate of 39.9% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 7.9% over the last 60 days. The stock has jumped 33.4% month to date.
Ubiquiti Inc. (UI - Free Report) offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. The company has an expected earnings growth rate of 33.3% for the current year (ending June 2021). The Zacks Consensus Estimate for current-year earnings has improved by 25.1% over the last 30 days. The stock of the Zacks Rank #1 company has climbed 32.8% month to date.
KLA-Tencor Corp. (KLAC - Free Report) designs, manufactures and markets process control and yield-management solutions for the semiconductor and related nano-electronics industries worldwide.
The company has an expected earnings growth rate of 20.8% for the current year (ends June 2021). The Zacks Consensus Estimate for the current year has improved 8.4% over the last 30 days. The Zacks Rank #2 stock has appreciated 28.9% month to date.
Trimble Inc. (TRMB - Free Report) provides technology solutions that enable professionals and field mobile workers to improve or transform their work processes worldwide. It operates through four segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.
The Zacks Rank #2 company has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved 10.9% over the last 30 days. The stock has surged 25.6% month to date.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Technology Sector Regains Momentum in November: 5 Top Picks
Wall Street stayed in positive zone in the first 11 months of 2020 despite the pandemic. The predominant force, behind Wall Street's impressive recovery from the short coronavirus-induced bear market was the technology sector.
However, in the last two months, the technology sector lost its pace of growth due to market participants' concern over the sector's overvaluation and the possibility of a COVID-19 vaccine that shifted investors' preference from growth-oriented technology stocks to cyclical reopening stocks.
Nevertheless, the technology sector has gathered pace once again in November. Several economic data revealed that coronavirus-led economic devastations were not as severe as expected in March-April and growing demand for more advanced tech products across the world reset the northbound journey of technology stocks in November.
Technology Stocks Revive in November
It was the technology sector that had helped Wall Street to exit a coronavirus-induced short bear market and form a new bull market. However, in the due course of market's V-shaped recovery from its trough on Mar 23, technology stocks got overvalued, as said by many financial experts.
The Technology Select Sector SPDR (XLK), the largest sector of the 11-broad sectors of the S&P 500 Index, rallied an astonishing 76% from Mar 23 to Aug 31. However, in September and October the XLK tumbled 5.3% and 5%, respectively.
However, the sector turned positive in November and has rallied 10.6% month to date. Moreover, the tech-heavy Nasdaq Composite has advanced 11.9% month to date after remaining in the negative territory in last couple of months.
Year to date, the XLK has soared 33.8% while the benchmark itself has advanced 12.6%. The Nasdaq Composite has jumped more than 36%. Notably, in 2019, the Nasdaq Composite rallied 35.2%, marking its best performance in six years. If the tech-laden index maintains its pace in December, it may easily surpass last year's record-breaking performance.
Tech Momentum Likely to Continue
In the long term, the technology sector will remain the predominant force to drive the market. We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, have boosted the overall space.
As social distancing is keeping near and dear ones away, people, especially the citizens of the emerging and less-developed countries, are reaching out more than ever with smartphones, tablets or notebooks.
The thrust for digitization is likely to come from two sides. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.
Our Top Picks
We have narrowed down our search to five technology stocks based on four criteria. First, we have selected tech behemoths (market capital > $10 billion) as these companies have a well-established business model and strong brand value. Second, these stocks have climbed more than 25% month to date.
Third, all these stocks have strong growth potential and witnessed robust earnings estimate revisions in the last 30 to 60 days, indicating solid business prospects. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks month to date.
The Trade Desk Inc. (TTD - Free Report) is a provider of technology platform for advertising. Ad buyers create, manage and optimize data-driven digital advertising campaigns using its cloud-based technology platform.
The Zacks Rank #1 company has an expected earnings growth rate of 27.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 48.3% over the last 30 days. The stock has soared 54.1% month to date.
Lam Research Corp. (LRCX - Free Report) supplies wafer fabrication equipment and services to the semiconductor industry. Its products are utilized by semiconductor manufacturers in front-end and WLP processes, creating memory, microprocessors, and other logic integrated circuits.
The Zacks Rank #2 company has an expected earnings growth rate of 39.9% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 7.9% over the last 60 days. The stock has jumped 33.4% month to date.
Ubiquiti Inc. (UI - Free Report) offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. The company has an expected earnings growth rate of 33.3% for the current year (ending June 2021). The Zacks Consensus Estimate for current-year earnings has improved by 25.1% over the last 30 days. The stock of the Zacks Rank #1 company has climbed 32.8% month to date.
KLA-Tencor Corp. (KLAC - Free Report) designs, manufactures and markets process control and yield-management solutions for the semiconductor and related nano-electronics industries worldwide.
The company has an expected earnings growth rate of 20.8% for the current year (ends June 2021). The Zacks Consensus Estimate for the current year has improved 8.4% over the last 30 days. The Zacks Rank #2 stock has appreciated 28.9% month to date.
Trimble Inc. (TRMB - Free Report) provides technology solutions that enable professionals and field mobile workers to improve or transform their work processes worldwide. It operates through four segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.
The Zacks Rank #2 company has an expected earnings growth rate of 7.5% for the current year. The Zacks Consensus Estimate for the current year has improved 10.9% over the last 30 days. The stock has surged 25.6% month to date.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>