With the FAANG stocks beginning to report this week, there’s much excitement around tech. That’s because, being some of the largest-cap stocks, they tend to influence overall market movement and especially, tech-heavy indexes like the NASDAQ. And of course movement in these indexes has an overall impact on sentiments, which indirectly impacts movement in other stocks as well. Often times, this is what sustains prolonged bull runs, creating many opportunities for investors.
But it probably isn’t such a good idea to pick your stocks on that basis alone. A certain amount of momentum trading helps generate quick gains (or losses), depending on how opportunistic you’ve been. But overall, it’s a much better idea to look at the company itself, check out its growth prospects, read the numbers and take note of management’s strategic commentary and directional guidance.
This can be a tedious process and at times, hard to understand, especially when the matter you’re reading is highly technical. So to make things simpler, we use Zacks proprietary methodologies that have proved themselves over the years.
Combining these with average broker ratings enables us to identify names on which we are in agreement, which further increases chances of accuracy.
With that goal in mind, I’ve picked three technology stocks that look ripe for the picking-
First up is Cisco Systems CSCO. Pretty much a bellwether in its own right, Cisco makes IP-based networking tech like swiches, routers, and wireless and security devices for service providers, enterprises, commercial users and individuals.
The shares carry a Zacks Rank #2 (Buy recommendation) and belong in the computer-networking industry, which is in the top 37% of Zacks-ranked industries.
The Zacks Rank (#1 through #5) identifies directional tendencies in stocks based on a large number of factors. So #1 (Strong Buy) and #2 (Buy) ranks indicate chances of upward movement while #4 (Sell) and #5 (Strong Sell) indicate downward pressure. At times, stocks with strong potential slip back to the #3 (Hold) position simply on valuation considerations. In such cases, it’s advisable to wait for a better entry or exit point.
As far as the industry rank is concerned, it has been proven time and again that of the 250+ Zacks-ranked industries, the top half outperforms the bottom half by a factor of more than 2 to 1. This generally happens because there are factors that affect the industry as a whole and therefore all the players in it. So for instance, when the Internet is used more for both work and entertainment as more people do everything at home, this would naturally tend to increase demand for networking gear from companies providing these services to people.
So all companies providing networking gear (like Cisco, for example) would see rising demand. If unprepared, it could deplete inventory across the industry, push up prices and generate stronger growth for most players. This kind of thing is captured in the industry rank.
Cisco has a Growth Score B. This is a style score, indicating the kind of investor that would find the stock particularly attractive. A growth score of A or B is generally favored by growth investors. The Zacks score takes care to factor in information from the income statement, balance sheet, cash flow and other areas to eliminate the risk inherent in this kind of investment. Since Cisco is a really big company, it typically doesn’t see big fluctuations in earnings, making for more stable returns.
The company will report results on Aug 12. Its earnings expected surprise prediction (ESP) is +2.96%. This means that the more recent estimates on Cisco are higher than the older ones, which generally happens when there is some positive news. When couple with a Zacks Rank of #3 or higher (as in this case) it is an indication of a positive earnings surprise. Also encouraging in this regard is its surprise history, which averages +3.99% in the preceding four quarters and further increases chances of a positive surprise.
Its average broker rating is 1.85, equivalent to a Zacks Rank #2.
Valuation: On the basis of price to forward 12 months earnings (P/E), the shares are trading at 15.04X, below the median value of 15.56X. The S&P 500 is trading at its annual high of 22.49X. So the shares are undervalued.
Second, we have Agilent Technologies A, which makes test and measurement products for electronics, industrial and chemical markets.
The shares carry a Zacks Rank #2 and belong in the electronics-testing equipment industry, which is in the top 13% of Zacks-ranked industries.
Its Growth Score is B.
The company will report on Aug 12. Its earnings ESP is 3.48%, indicating a positive earnings surprise. The average surprise in the preceding four quarters is 7.87%.
The average broker rating for Agilent is 1.91, equivalent to a Zacks Rank #2.
Valuation: Agilent shares are trading at their annual high of 28.23X, just like the S&P 500. But given expectations of a positive earnings surprise, they could move higher before long.
Finally, there’s Benefitfocus, Inc. BNFT, which offers a cloud-based benefits management platform facilitating shopping, enrollment, management and exchange of benefits information between consumers, employers, insurance carriers and brokers in the U.S.
The Zacks Rank #2 Buy company belongs in the Internet – software industry, which is in the top 38% of Zacks-ranked industries.
Its growth score is B.
The company will report on Aug 5. Its earnings ESP is +3.48%, indicating a positive earnings surprise. The average surprise in the preceding four quarters is 71.65%.
The average broker rating for Benefitfocus is 1.57, equivalent to a Zacks Rank #2.
Valuation: On the basis of price to forward sales (P/S), BNFT is trading at 1.30X, which is below its median value of 1.86X over the past year. The S&P 500 is trading at its annual high of 3.60X. so the shares are undervalued.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
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