The United States Senate just passed the Tax Cuts and Jobs Act, marking President Donald Trump’s first major legislative conquest. The highlight of the reform is the slash in corporate tax rate from 35% to 20% that is expected to boost the bottom line of the companies.
However, the technology sector is unlikely to benefit much from the reforms owing to the fact that it already enjoys several tax benefits and therefore has a lower effective tax rate. Citing S&P Global data, Bloomberg stated, “Among sectors, the 18.5 percent effective tax rate enjoyed by the group is the third-lowest among U.S. large caps.”
This was also evident from the sector’s not so impressive run in early December 2017 when investors were moving their funds into sectors which had higher scope for gains. As a matter of fact, just after the Republican Senate passed the bill with a 51-49 majority on Dec 2 morning, the Technology Select Sector SPDR ETF (XLK) declined approximately 2% in next two trading days.
Nevertheless, we believe that the technology sector, which has been benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, augmented/virtual reality devices, and Internet of Things (IoT) related software is capable of regaining momentum in 2018.
In fact, investors also soon realized that the early December plunge across the technology sector is an opportunity to invest in stocks that were too pricey earlier.
Here are a few stocks that saw a decline in their prices in early December following a shift in investors’ focus toward other sectors. But these stocks enjoy strong fundamentals and thus are well poised for growth.
Broadcom Ltd. AVGO is one such stock which is still available at discount compared with with Dec 1 closing price. We believe that the company has several driving factors, which can help it gain going ahead.
The company is benefiting from strong demand for its wireless solutions. The trend is expected to continue in fiscal 2018. Moreover, the upcoming launch of the next generation WiFi products is expected to be a growth driver for the segment. Additionally, Broadcom’s focus on multiple target markets mitigates operating risks and lessens the exposure to volatility in any single market. Based on its expanding product portfolio, the company is well-positioned to address the needs of rapidly growing technologies like IoT and 5G.
The company’s Zack’s Rank #1 and VGM Score of B are further testaments to its upside potential. The VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum, across the board.
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Our next choice is WESCO International, Inc. WCC, which, like Broadcom, is also available at discount compared with its Dec 1 closing price.
We believe the company is benefiting from strength across all end markets and geographic regions, improved sales execution and positive pricing. The company continues with its focus on delivering above-average sales growth, profitability improvement, strong cash flow generation and increasing shareholder value. Moreover, its comprehensive portfolio of products and services, and a sizable global footprint are further tailwinds for the company.
The company has a Zacks Rank #2 and a VGM Score of B, which makes the stock an attractive pick at the moment.
WESCO International, Inc. Revenue (TTM)
WESCO International, Inc. Revenue (TTM) | WESCO International, Inc. Quote
You can see the complete list of today’s Zacks #1 Rank stocks here.
Another stock which is still lower than its Dec 1 closing price is Stratasys Ltd. SSYS. The significant discount, at which the stock is available when coupled with its strong fundamentals, makes it a good buy.
The company seems to be well poised for steady growth backed by its turnaround strategies, which include launching innovative products, strategic partnerships and acquisitions. These initiatives are paving the way for the company to excel in the 3D printing industry, which is anticipated to witness CAGR of 25.76% through 2017 to 2023 and reach $32.78 billion.
The company has a Zacks Rank #2 and a VGM Score of B, which further indicate its upside potential.
Western Digital Corp. WDC is one stock that has already covered up its early December loss. The company is poised to benefit from robust demand in end markets as well as strong growth prospects for flash-based storage products. The ongoing transformation to 3D NAND technology is also driving top-line growth. We note that the company is gaining from strong demand for both hard drive and NAND-based products from all categories of customers, largely driven by cloud and mobility based applications.
Additionally, the stock sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A.
Western Digital Corp. Revenue (TTM)
Investing in these selected technology stocks can prove to be beneficial for investors in 2018 amid President Donald Trump’s corporate tax rate cut, which is believed to least favor the sector.
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