After crashing in March, the U.S. stock market rebounded strongly in the months of April and May from the pessimism surrounding the coronavirus crisis. Optimism over a potential vaccine for COVID-19 and an uptick in economic activities, as lockdown measures are now starting to ease, are mainly driving the U.S. stock market.
The technology sector played a crucial role in the quicker-than-expected recovery of the stock market. During the April-May period, the tech-laden Nasdaq Composite index gained 24%, bringing the index’s year-to-date return to +5.8% at the end of May from the -14.2% witnessed at the end of March.
The Technology Select Sector SPDR (XLK), the most important component of the broad market index, rallied 21.9%, during the April-May period. Moreover, the ETF has a positive year-to-date return of 6.8%.
Among the Nasdaq’s 100 components, 52 stocks have registered positive year-to-date returns, of which 21 are from the Computer and Technology sector.
What’s Driving the Tech Sector’s Outperformance?
The coronavirus outbreak has, surprisingly, opened up newer avenues of growth for tech companies. The pandemic-led global lockdown is fueling demand for PCs, notebooks and peripheral accessories, as more and more workers and students are now working and learning 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 the continuous digital transformations. Rapid adoption of cloud computing, along with the 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?
Considering the healthy growth prospects of tech companies, it makes sense to invest in this space for long-term gains. Amid this economic and financial instability, 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 that were imposed to prevent the spread of coronavirus.
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, which currently sports a Zacks Rank #1, is benefiting from the shift in demand trend owing to the coronavirus outbreak. The company, which has a Growth Score of B, offers a 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 the 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 48% year over year to 74 cents per share in 2020.
Dropbox, Inc. Price and Consensus
Dropbox, Inc. price-consensus-chart | Dropbox, Inc. Quote
Applied Materials AMAT is well poised to gain from the integration of advanced machine learning capabilities across its semiconductor fabs to enhance automated defect analysis.
This Zacks Rank #2 stock has developed an automated defect-classification technology that utilizes different imaging techniques to identify and eliminate defects in chip manufacturing. Also, the company's commitment toward development of new AI and machine learning-powered computing materials and designs holds promise.
The stock has a Growth Score of B. Additionally, Applied Materials’ earnings are likely to jump 25.3% year on year to $3.81 per share in fiscal 2020.
Applied Materials, Inc. Price and Consensus
Applied Materials, Inc. price-consensus-chart | Applied Materials, Inc. Quote
Fortinet FTNT seems to benefit from the growing threat landscape, thanks to its suite of efficient offerings. The FortiMail platform can be used to block specific file types containing certain keywords.
With the growing number of employees working from home due to the coronavirus scare, the use of cloud and virtual meetings is also increasing. This is a great opportunity for the new hacking method doing the rounds to extract information and launch an attack. The rising cyber-attack risks are propelling demand for Fortinet’s products and services.
This Zacks Rank #2 stock has a Growth Score of A. The company’s earnings are projected to be up 11.3% year over year to $2.75 per share in the ongoing year.
Fortinet, Inc. Price and Consensus
Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote
Atlassian Corporation Plc TEAM, which carries a Zacks Rank #2 at present, is poised to grow on the massive digitalization of work in organizations, big or small. This apart, integration with leading applications like Slack, Dropbox, and Adobe, along with partnerships with the likes of Amazon’s AWS and Microsoft, will likely expand the Atlassian paying user base.
The stock has a Growth Score of A and its earnings are likely to grow 26.7% in fiscal 2020.
Atlassian Corporation PLC Price and Consensus
Atlassian Corporation PLC price-consensus-chart | Atlassian Corporation PLC Quote
Synopsys SNPS is riding on the rising demand for advanced technology, design, IP and security solutions. Further, strong momentum in Fusion Design Platform and Verification Continuum platform is a key catalyst.
This Zacks Rank #2 stock has a Growth Score of B. The stock’s earnings are likely to jump 15.6% year on year to $5.27 per share in fiscal 2020.
Synopsys, Inc. Price and Consensus
Synopsys, Inc. price-consensus-chart | Synopsys, Inc. Quote
5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
See the 5 high-tech stocks now>>
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