Investing in the technology sector while being hugely rewarding can also be tricky given the fast pace of evolution. There is no doubt that it is the only sector touching every other in some form or the other. Within the technology sector, cloud computing is an emerging domain, which has been gaining significant traction over the past few years.
The idea of cloud computing is vastly appealing to companies as it can significantly increase the efficiency of operations while reducing costs. Software has made all the difference and it is now provided as a service over the Internet, so enterprises can increasingly purchase just the amount that they need and also scale without any hassles.
However, not all companies in the domain are performing well at present. Oracle Corp. ORCL is one such stock. In the last-reported quarter, despite managing to beat the Zacks Consensus Estimate by 1.56%, Oracle could not sustain investor confidence.
While Oracle has been taking initiatives to strengthen its capabilities in the cloud, the ongoing business transition on the one hand and the strengthening of the U.S. dollar on the other continue to weigh on the company’s financials. Further, revenues from a cloud subscription model are realized over a period of several years, which remains a drag in the near term.
Year to date, shares of this software provider have dipped about 3.02% compared with an increase of 2.43% in the S&P 500 index over the same time. Moreover, of late, this Zacks Rank #4 (Sell) stock has been witnessing negative estimate revisions.
The company’s long-term growth estimate of 9.4% is also far below the industry's expected growth rate of 15.8%. Also, a PEG ratio of 1.17 makes the company slightly overvalued, indicating the possibility of downside going ahead.
However, we have picked a handful of stocks in the tech sector that are likely to ride the growth momentum while beating the odds.
Our Picks
Autohome Inc. ATHM
China-based Autohome Inc. provides content to automobile buyers and owners through its websites. In addition the company offers services in relation to advertising, dealer subscription, used automobile listings and automobile dealer subscription. The company also offers automotive aftermarket services and real-time feedback on the service providers.
Zacks Rank # 1 (Strong Buy)
Last EPS Surprise: 40%
Average 4-quarter Surprise: 11.49%
Long-term Growth Rate: 40.5%
Year-to-date return: 46.56%
PEG: 0.88
The company is set to report its second quarter fiscal 2015 results on May 6.
Avago Technologies Ltd. AVGO
Avago Technologies provides a diverse range of analog, digital, mixed signal and optoelectronics components and subsystems. The company’s primary target markets include wireless communications, enterprise storage, wired infrastructure and industrial.
Zacks Rank # 1
Last EPS Surprise: 11.8%
Average 4-quarter Surprise: 16.49%
Long-term Growth Rate: 17.8%
Year-to-date return: 19.45%
PEG: 0.87
Skyworks Solutions Inc. SWKS
Skyworks Solutions designs, manufactures, and markets a broad range of high performance analog and mixed signal semiconductors that enable wireless connectivity. The company’s products include power amplifiers (PAs), front-end modules (FEMs), radio frequency (RF) sub-systems, and cellular systems. Leveraging its core analog technologies, the company also offers a diverse portfolio of linear integrated circuits (ICs) that support automotive, broadband, cellular infrastructure, industrial and medical applications.
Zacks Rank # 2 (Buy)
Last EPS Surprise: 4.55%
Average 4-quarter Surprise: 1.65%
Long-term Growth Rate: 20.8%
Year-to-date return: 30.04%
PEG: 0.98
The company is set to report its second quarter fiscal 2015 results on Apr 30.
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