The technology sector has lately been spooked by a spate of negative news from some of its key companies. Among the worst hit were FANG stocks as Facebook’s FB data scandal raised concerns over stringent regulations for the social media space, and a series of allegations from Donald Trump via Twitter on its business practices spurred Amazon’s AMZN sell-off.
The attack from industry players like chipmaker Taiwan Semiconductor Manufacturing TSM and semiconductor-equipment supplier Lam Research LRCX added to the latest chaos. Taiwan Semiconductor warned of waning mobile demand for the second quarter and thus reduced its sales growth target for this year to 5% from its prior outlook of 5-7% growth while Lam Research offered a disappointing outlook for chip-gear shipments for the rest of the year.
Notably, TSM is Apple's AAPL biggest supplier and the negative news has taken a toll on shares of the technology giant. Apple shed $60 billion in two days following the news. Several global chipmakers also lost market value, including Analog Devices ADI, Qualcomm QCOM and Qorvo QRVO.
While a number of these headwinds have spread negative sentiments in the space, the rapid adoption of cutting-edge technology and solid corporate earnings are expected to fuel growth. In particular, Q1 earnings from 29.9% of the sector’s total market capitalization reported so far are up 36.3% on 13.7% higher revenues, with 100% of the companies beating on earnings and 85.7% exceeding top-line estimates. Overall, earnings and revenues for Q1 are expected to grow 22.6% and 11.9%, respectively.
Given the optimism, a number of stocks in the sector have seen their Rank surging to the top-most rung in a couple of days. These are also backed by strong fundamentals compared to many others. Any of these could be a compelling choice to beat the ongoing tech turmoil and make for great picks this earnings season. You can see the complete list of today’s Zacks #1 Rank stocks here.
On Assignment Inc. ASGN
This provides IT and professional services primarily in the technology, creative/digital, engineering, life sciences and government sectors. The stock has an expected earnings growth rate of 34.43%, much higher than the industry average of 24.68%. Sales are also expected to grow at an above-industry average rate of 25.64%. Additionally, the stock seems undervalued with a P/E of 19.97 when compared with industry average of 20.09%. The company came up with quarterly results on Apr 25, wherein it outpaced the Zacks Consensus Estimate for earnings by 10.67% and for revenues by 1%.
ServiceNow, Inc. NOW
This provides cloud-based services that automate enterprise IT operations. It also delivered a huge earnings beat of 51.35% and revenue beat of 2.83% on Apr 25. The stock has an expected earnings growth rate of 68.40% for this year, much higher than the industry average of 24.68%. Sales are also expected to grow above-industry average at 32.14%.
VeriSign Inc. VRSN
This is a global leader in domain names and Internet security, enables Internet navigation for many of the world's most-recognized domain names and provides protection for websites and enterprises around the world. The stock saw positive earnings estimate revision of a penny over the past 30 days for the yet-to-be-reported quarter. Analysts raising estimates right before earnings is a pretty good indicator of some favorable trends for the company. The company is slated to release its result on Apr 26 after market close.
VeriSign has a Zacks Rank #1 and has an Earnings ESP of +2.83%, indicating high chances of beating estimates this quarter. Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Seagate Technology plc STX
This company offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives. It saw positive earnings estimate revision of a couple of cents over the past seven days for the yet-to-be-reported quarter (results expected on May 1). It has an Earnings ESP of +3.43%. The stock seems attractively valued at P/E of 11.82, lower than the industry average of 15.81.
SMART Global Holdings Inc. SGH
This company is a designer, manufacturer and supplier of electronic subsystems to OEMs and is engaged in the computer, industrial, networking, telecommunications, aerospace and defense markets. It has a whopping earnings growth estimate of 174.78% for this fiscal year, much higher than the industry growth of 15.31%. Revenue growth of 841.99% is also projected to be above the industry growth of 7.12%. Further, SGH is a cheap choice at present given its P/E ratio of 6.28 versus industry’s P/E of 16.89.
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