After a banner year, Wall Street’s tech big cheese continues to scale new highs in 2018. Computer and software makers, Internet players and chipmakers are having a ball after the repatriation tax holiday in the GOP’s plan is expected to boost stock prices of these companies, while also stimulating the U.S. economy.
And if a few worrywarts feel that the stock of the tech biggies have become pricey relative to earnings, then the continued strength in profits and sales might drive share prices higher. This calls for investing in this space for handsome returns.
Tech Stocks Soar in New Year
Tech stocks have easily outperformed the broader equity market’s rally last year. While the Nasdaq soared 29.6%, the broader S&P 500 gained 21.8%. Tech stocks marched higher this year as well, with the Nasdaq closing above the coveted 7,000 mark. The tech-rich index raced to a fresh 1000-point milestone in around eight months, a pace not seen since the tech boom period.
Tech heavyweights Netflix, Inc. NFLX, Apple Inc. AAPL, Amazon.com, Inc. AMZN, Google parent Alphabet Inc GOOGL, Microsoft Corp MSFT and Facebook Inc FB collectively contributed almost two-third of the points that helped the Nasdaq climb from one 1000-point to another, as per stock-market research firm Birinyi Associates.
But, will the lofty valuation lead to a fall in 2018? Wall Street analysts mostly disagree, and rightly so. Netflix is poised for a bigger rise this year as it is far ahead of peers in building subscription video services. The company is also rumored to be acquired by Apple, which may drive its stock further north. Apple, by the way, is benefitting from steady iPhone sales, spurt in services segment and resurgence in Mac and iPad sales.
Amazon’s juggernaut, in the meanwhile, seems unstoppable. The company has already shipped more than 5 billion items from its Prime membership service to subscribers and is on the verge of buying Target Corporation TGT following its purchase of Whole Foods.
While Alphabet’s strong advertising revenues and improving paid click growth remain growth drivers, Microsoft’s rapid adoption of Azure and Office 365 will remain a key catalyst in the near future. And when it comes to Facebook, the company’s efforts in mobile and live videos continue to pay off.
Semiconductor Stocks Rally
A steady rally among semiconductors supported the broader tech sector at the beginning of this year, while the PHLX Semiconductor index gained nearly 40% last year. These makers of computer chips utilized in everything from smartphones to self-driving cars, in fact, recently got a boost from a survey by the Semiconductor Industry Association. The report showed that worldwide chip sales climbed 21.5% in November from a year earlier.
While all the major semiconductors made headway in recent times, NVIDIA Corporation NVDA has progressed by leaps and bounds. The world’s leading graphics chipmaker’s commendable position in areas such as Artificial Intelligence (AI), deep learning and driverless cars industry are making investors optimistic about its prospects.
Catalysts Behind the Surge
The House of Representatives approved the biggest overhaul of the U.S. tax code in 30 years, which mostly supported the gains among the manufacturers of internal technologies —the semiconductor makers and the software industry.
As per Statista, corporate taxation rate in the United States was among the world’s highest. This explains why most of the tech majors stash cash overseas. In fact, a Nikkei Asian Review showed that combined overseas cash reserves of major tech companies exceeded the Japanese government’s overall tax revenues in fiscal 2016.
But, the headline-grabbing move of the bill was slashing the corporate tax rate from 35% to 21%. This in turn will make tech players repatriate trillions of dollars held abroad and eventually drive their after-tax earnings. Tech companies can also use this extra cash for research and development and M&A activities.
Top 5 Tech Behemoths to Buy Now
Investors, thus, should double down on the hottest tech behemoths after they cross one record after another, primarily, backed by favorable government policy. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Apple designs, manufactures, and markets mobile communication and media devices, and personal computers. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 0.3% in the last 60 days. The stock’s expected growth rate for the current year is 21.4%, in contrast to the industry’s expected decline of 1%. Apple yielded a return of 46.1% in 2017.
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Facebook provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 1.6% in the last 60 days. The stock’s expected growth rate for the current year is 37.6%, higher than the industry’s projected gain of 9.9%. Facebook yielded a return of 53.4% last year.
NVIDIA operates as a visual computing company worldwide. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 16.1% in the last 60 days. The stock’s expected growth rate for the current year is 62.9%, way higher than the industry’s projected gain of 19.8%. NVIDIA yielded a return of 81.3% in 2017.
Micron Technology, Inc. MU provides semiconductor systems worldwide. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings surged 32.8% in the last 60 days. The stock, which is part of the Semiconductor Memory industry, is expected to grow at a solid rate of 98.1% this year. Micron Technology yielded a return of 87.6% last year.
Broadcom Limited AVGO designs, develops, and supplies a range of semiconductor devices. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 13.2% in the last 60 days. The stock’s expected growth rate for the current year is 20.7%, higher than the industry’s projected gain of 3.1%. Broadcom yielded a return of 45.3% in 2017.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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