The technology sector had been strongly resilient to the negative impact of the COVID-19 pandemic-induced disruptions last year. In fact, the global health crisis, surprisingly, opened up newer avenues of growth for several industries in the broader tech sector, resulting in stellar revenue and earnings growth for several companies in the sector in 2020.
The top- and bottom-line growth momentum for majority of tech stocks continued in first-quarter 2021 as well. Notably, the second-quarter reporting cycle is also anticipated to reflect continuation of the same trend. According to the latest Zacks Earnings Outlook article, total earnings for the S&P 500 member tech companies are likely to be up 33.3% year over year in the second quarter on 18.1% higher revenues.
What’s Driving Tech Sector’s Performance?
The adoption rate of Internet-based services and apps has been accelerating rapidly for the past year since people are compelled to stay indoors, thanks to the pandemic-induced restrictions and social-distancing measures.
Moreover, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage. Additionally, the global remote working wave is spurring demand for advanced technology-based virtual meetings and conference tools.
All these, in turn, are propelling growth in the high speed Internet services. Further, the growing proliferation of artificial intelligence technology, and cloud computing products and services in managing this pandemic situation is a tailwind. Besides, the rising demand for robust communication networks is another positive.
The aforementioned trends are stoking demand for semiconductor chips. Notably, Micron Technology MU reported stellar third-quarter fiscal 2021 results last week. The company witnessed solid demand for its memory chips from PC manufacturers and data-center operators.
Apart from these, the adoption rate of streaming services for entertainment has surged in this ‘stay at home’ scenario.
All these positives will encourage investors to buy tech stocks.
As the second-quarter earnings season officially kick starts next week, estimate-beating stocks will be the most important ones from an investment point of view. We believe investors should always hunt for such stocks before an earnings release. This strategy would place them ahead of time and help bet on stocks that are rich in quality and have higher chances of beating earnings estimates.
How to Pick the Right Stocks
We have used several selection criteria for our picks. First, we selected large-cap (over $10 billion in market cap) stocks as these companies have been doing businesses for a long time and their stock prices are generally stable. Secondly, these stocks have robust fundamentals that help investors stay afloat in a turbulent economic and business environment.
Third, all these stocks are expected to release earnings reports within the next 30 days and have a positive Earnings ESP. Finally, each of our picks either carries a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%.
KLA Corporation KLAC is an original equipment manufacturer (OEM) of process diagnostics and control (PDC) equipment and yield management solutions required for the fabrication of semiconductor integrated circuits (ICs) or chips.
The company, scheduled to report fourth-quarter fiscal 2021 results on Jul 29, has an Earnings ESP of +2.71%. This Zacks Rank #2 company delivered earnings surprises in all of the last four quarters, the average beat being 8.9%.
KLA Corporation Price and Consensus
Apple Inc.’s AAPL business primarily runs around its flagship iPhone, MacBook and tablets. However, the Services portfolio that includes revenues from cloud services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services has now become the latest cash cow.
This Zacks #2 Ranked company is slated to report third-quarter fiscal 2021 results on Jul 27. The company has an Earnings ESP of +0.60% for the to-be-reported quarter. It came up with earnings surprises in the trailing four quarters, the average beat being 23%.
Apple Inc. Price and Consensus
Garmin, Ltd. GRMN is an original equipment manufacturer (OEM) of navigation and communication equipment that incorporate the global positioning system (GPS)-based technology.
The company, expected to report quarterly figures around Aug 4, has an Earnings ESP of +4.54% for the June-end quarter. The Zacks Rank #2 company recorded earnings surprises in each of the last four quarters, the average beat being 64.1%.
Garmin Ltd. Price and Consensus
Infosys Limited INFY provides consulting, technology, outsourcing, and next-generation digital services globally. The company has an Earnings ESP of +2.59% for first-quarter fiscal 2022. In the last four quarters, this Zacks Rank #3 company has surpassed consensus estimates once and matched on the other occasion, the average beat being 7.2%. Infosys is set to release quarterly numbers on Jul 21.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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