Just two days of trading are left, and a coronavirus-stricken 2020 is turning out to be fairly successful for Wall Street. Defying a large section of economists and industry experts, major indexes like the Dow, the S&P 500 and the Nasdaq Composite, mid-cap specific S&P 400, and small-cap centric Russell 2000 are in positive territory. In fact, except for the Dow, other indexes have recorded double-digit gains.
However, the most surprising fact was the performance of the technology sector. Technology is generally recognized as a growth-oriented sector. In this regard, the sector should have borne the maximum brunt of global economic devastation caused by an unprecedented health hazard – the novel coronavirus. In reality, surprising a big lot of market participants, the technology sector has turned out as the savior of the stock markets.
The New Safe Haven
It was technology that had pushed Wall Street to exit a coronavirus-induced short bear market and form a new bull market. This overwhelming performance prompted several economists and financial experts to comment that the technology sector is the new safe haven for investors.
The Technology Select Sector SPDR (XLK), one of the 11 broad sectors of the S&P 500 Index, has rallied 41.7% year to date while the benchmark itself is up 15.6%. The sector has soared 90.7% from its recent trough recorded from Mar 23 to Dec 29.
The sector had a bull run from April to August and thereafter it suffered some setbacks in September and October as investors’ were highly concerned about the sec tor’s overvaluation. However, the sector regained momentum since November.
Likewise, the tech-heavy Nasdaq Composite has climbed 43.2% year to date. The index is set to register its best performance since 2009 when it railed 43.9%. The tech-laden index has soared 93.8% from Mar 23 to Dec 29.
Technology is the Best Bet in the Long Term
Notably, last year, which recorded the best performance of Wall Street in six years, technology stocks drove the overall market. This year, the technology sector is again leading the recovery from the coronavirus-led economic devastation, reflecting its inherent strength.
In the long term, the technology sector will be a force to reckon with in the market. We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, have boosted the overall space.
As social distancing is keeping near and dear ones away, people, especially the citizens of the emerging and less-developed countries, are reaching out more than ever with smartphones, tablets or notebooks.
The thrust for digitization is likely to come from two sides. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting has opened up a new world for them. Also, business entities will be more interested in cloud computing, automation and AI to establish smooth supply chain systems.
Our Top Picks
We have narrowed down our search to six technology stocks based on four criteria. First, we have selected large-cap (market capital > $10 billion) stocks as these companies have a well-established business model and strong brand value. Second, these stocks have skyrocketed more than 50% year to date.
Third, all these stocks have strong growth potential for 2021 and witnessed robust earnings estimate revisions within the last 60 days, indicating solid business prospects. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
The chart below shows the price performance of our six picks year to date.
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NVIDIA Corp.
NVDA
is gaining decent market share among gaming service providers. The strong line-up of advanced graphics cards has made it a favorite graphics card provider among PC makers. Its foray into the autonomous vehicles space is a major positive. NVIDIA’s GPUs are rapidly gaining from the proliferation of artificial intelligence.
The Zacks Rank #1 company has an expected earnings growth rate of 18.7% for next year (ending January 2022). The Zacks Consensus Estimate for its next-year earnings has improved 0.4% over the last 30 days. The stock price has jumped 120% year to date.
IPG Photonics Corp.
IPGP
develops and manufactures a range of high-performance fiber lasers, fiber amplifiers and diode lasers used in various applications primarily in materials processing worldwide.
The Zacks Rank #1 company has an expected earnings growth rate of 60.1% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 4.3% over the last 60 days. The stock price has advanced 52.9% year to date.
CrowdStrike Holdings Inc.
CRWD
provides cloud-delivered solutions for next-generation endpoint protection in the United States, Australia, Germany, India, Romania, and the United Kingdom. It offers 11 cloud modules on its Falcon platform through a software -as-a-service (SaaS) subscription-based model that covers various security markets.
The Zacks Rank #2 company has an expected earnings growth rate of 47.2% for next year (ending January 2022). The Zacks Consensus Estimate for next-year earnings has improved 33.3% over the last 30 days. The stock price has rallied 312.9% year to date.
Zscaler Inc.
ZS
operates as a cloud security company focusing on transforming networks and applications for a mobile and cloud-first platform.
The Zacks Rank #2 company has an expected earnings growth rate of 54.2% for the current year (ending July 2021). The Zacks Consensus Estimate for current-year earnings has improved 27.6% over the last 30 days. The stock has soared 325.5% year to date.
Zendesk Inc.
ZEN
provides SaaS products for organizations in North America, Latin America, Europe, the Middle East, Africa, Australia, and the Asia Pacific. Its flagship product is Zendesk Support, a system for tracking, prioritizing and solving customer support tickets across various channels.
The Zacks Rank #2 company has an expected earnings growth rate of 36.4% for next year. The Zacks Consensus Estimate for next-year earnings has improved 2.6% over the last 60 days. The stock has climbed 82.8% year to date.
Dynatrace Inc.
DT
is engaged in providing intelligent-software based application performance management, artificial intelligence for operations, cloud infrastructure monitoring and digital experience management.
The Zacks Rank #2 company has an expected earnings growth rate of 80.7% for the current year (ending March 2021). The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last 60 days. The stock has surged 65.5% year to date.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.
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