The technology sector, which enabled Wall Street to get rid of the coronavirus-induced short bear market and formed the new bull market, suffered a bloody blow as soon as 2022 started. Record-high inflation compelled the Fed to turn ultra-hawkish with tighter liquidity control and a higher interest rate regime. Consequently, the blood bath in the technology sector has been visible year to date.
However, in the first five months of this year, the valuation of this sector has been corrected significantly. The Technology Select Sector SPDR
XLK
— one of the 11 broad sectors of the S&P 500 Index — has tumbled 19.5% year to date. The tech-heavy Nasdaq Composite Index has plunged 23.3% year to date and is currently under bear market territory.
Most of the tech behemoths have seen massive correction in stock prices and are currently available at attractive valuations. We have selected five such stocks with a favorable Zacks Rank and solid potential for the rest of 2022. These companies are –
Cadence Design Systems Inc.
CDNS
,
GLOBALFOUNDRIES Inc.
GFS
,
Analog Devices Inc
.
ADI
,
Roper Technologies Inc.
ROP
and
Synopsys Inc.
SNPS
.
Technology is the Best Bet for the Long Term
The recent meltdown of the technology sector is a temporary phenomenon. The fundamentals of this sector are rock solid. 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, has given a boost to the overall space.
Tech Has Vast Potential — Buy on the Dip
The leading emerging markets of Asia, Latin America, Africa and some European countries are still way behind in using digital technology compared to the developed world. While mobile phone penetration is nearly 90% in these countries, a large number of people are still using phones with old features, since voice communication and not data serve most of their needs. Even those using smartphones, rarely utilize online digital features.
However, the outbreak of coronavirus quickly changed the lifestyle and lookout of these people. People were not entirely used to the digital platforms for their office work (work from home), ordering foods and other daily needs or transferring money and making payments. Moreover, online schooling, video conferencing and virtual networking have now become essential.
The countries that are more digitized have been able to minimize their losses during the pandemic. These are major lessons to the other countries. Even those who are less inclined toward the digital technology and online platforms, either because they have to learn using smartphones or tablets or due to fear of data theft, are now feeling the massive advantage of the online platforms.
Our Top Picks
We have narrowed our search to five U.S. tech giants (market capital > $30 billion) that are currently trading on the dip. These stocks have positive growth potential for the rest of 2022 and have witnessed positive earnings estimate revisions within the last 60 days. 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 five picks in the past three months.
Image Source: Zacks Investment Research
Cadence Design Systems
offers products and tools that help customers design electronic products. Through the System Design Enablement strategy, CDNS offers software, hardware, services and reusable IC design blocks to electronic systems and semiconductor customers.
Cadence’s performance is being driven by strength across segments like digital & signoff solutions and functional verification suite. CDNS is also gaining from higher investments in emerging trends like IoT and autonomous vehicle sub-systems along with strength in the semiconductor end-market. Frequent product launches are expected to help CDNS sustain top-line growth.
Zacks Rank #1 Cadence Design Systems has an expected earnings growth rate of 19.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.6% over the last 60 days. CDNS is currently trading at a 20.5% discount from its 52-week high.
GLOBALFOUNDRIES
operates as a semiconductor foundry worldwide. GFS manufactures integrated circuits, which enable various electronic devices that are pervasive. The company delivers feature-rich solutions which enable its customers to develop innovative products for pervasive chips.
GLOBALFOUNDRIES manufactures a range of semiconductors, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, power management units, and microelectromechanical systems.
Zacks Rank #2 GLOBALFOUNDRIES has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 21.1% over the last 30 days. GFS is currently trading at a 26.9% discount from its 52-week high.
Analog Devices
has strength across communication, consumer, industrial and automotive end-markets. Further, solid demand for high-performance analog and mixed-signal solutions has acted as a tailwind. Growing momentum across the electric vehicle space on the back of robust Battery Management System solutions remains a positive for ADI.
Further, growing power design wins are the other positives for Analog Devices. The solid momentum of the HEV platform across the cabin electronics ecosystem remains a tailwind for ADI. Moreover, Analog Devices remains optimistic about the growth prospects associated with its Maxim acquisition and 5G.
Zacks Rank #1 Analog Devices has an expected earnings growth rate of 43% for the current year (October 2022). The Zacks Consensus Estimate for its current-year earnings has improved 9.6% over the last 30 days. ADI is currently trading at a 14.2% discount from its 52-week high.
Synopsys
is benefiting from strong design wins owing to a robust product portfolio. Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Moreover, strong traction for SNPS’ Fusion Compiler product boosted the top line.
Growing demand for advanced technology, design, IP and security solutions is also creating solid prospects for Synopsys. Moreover, the rising impact of artificial intelligence, 5G, internet of things and big data are driving investments in new compute and machine learning architectures.
The Zacks Rank #2 Synopsys has an expected earnings growth rate of 23.8% for the current year (October 2022). The Zacks Consensus Estimate for its current-year earnings has improved 7.2% over the last 30 days. SNPS is currently trading at a 16.1% discount from its 52-week high.
Roper
is poised to benefit from strength across its businesses, acquired assets and a strong operational execution in the quarters ahead. ROP’s ability to generate healthy cash flows adds to its strength and supports its policy of rewarding its shareholders through dividend payments. For 2022, Roper’s overall organic sales are predicted to grow 7-9% year over year.
The Zacks Rank #2 Roper has an expected earnings growth rate of 10.2% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the last 30 days. ROP is currently trading at a 14.6% discount from its 52-week high.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
