The coronavirus pandemic has been causing bloodbath on all fronts, rattling stock markets and the global economy. The virus-led sell-off has terminated the 10 years of the U.S. market expansion which began post the 2007-2009 financial crisis.
Moreover, Wall Street just completed one of its worst quarters in history. The three major stock indices — the Dow, the S&P 500 and the Nasdaq Composite — plunged 23.2%, 20% and 14.2%, respectively, in first-quarter 2020. Notably, this was the worst ever first-quarter performance of both the Dow and the S&P 500.
Though the coronavirus outbreak has had a sector-wide impact, the U.S. tech sector has been more resilient compared with other sectors. The Technology Select Sector SPDR Fund XLK plunged 12.3% in the March-end quarter, while Energy Select Sector SPDR Fund, Financial Select Sector SPDR Fund, and Industrial Select Sector SPDR Fund have lost 51.6%, 32.4%, and 27.6%.
Why Tech Stocks Outperformed in Q1?
The sector’s resiliency can be attributed to the impressive long-term growth prospects of tech companies. Rapid adoption of cloud computing, along with ongoing integration of AI and machine learning, has been a major growth driver.
The accelerated deployment of 5G technology, blockchain, IoT, autonomous vehicles, AR/VR and wearables offer significant growth opportunities.
In addition, the coronavirus outbreak has, surprisingly, opened up newer avenues of growth for semiconductor companies. Shift in consumer preference for Internet-based services, thanks to increasing social distancing, has propelled demand for PCs, notebooks and peripheral accessories. Furthermore, the growing demand for software and hardware that facilitates work-from-home setting is a key catalyst. (Read More: 6 Remote-Working Software Stocks to Ride on Virus-Led Lockdowns)
What Lies for Q2 and Beyond?
The pandemic continues to spread its tentacles further, with no signs of waning any time soon. The associated global economic and financial impact doesn’t seem to have peaked yet. Therefore, we expect market volatility to remain in the weeks to come.
Nevertheless, there is some good news for the market that indicates fast recovery once the virus scare subsides. The number of coronavirus cases seems to be stabilizing in China — the epicenter of outbreak — which is helping businesses restart productions.
China’s Manufacturing and Non-Manufacturing PMI numbers rebounded in March after sliding to a record-low in February. Manufacturing PMI reached 52.0 and Non-Manufacturing came in at 52.3 for March, well above the February readings of 35.7 and 29.6, respectively. Notably, a reading greater than 50 indicates expansion.
Furthermore, massive monetary and fiscal policy easing by governments across the world will help revive business. Last week, the U.S. Senate approved the $2-trillion stimulus package to provide a boost to the economy. Moreover, the government and the Fed have hinted at raising the fiscal and monetary stimulus to $6-$7 billion. Besides the United States, internationally another $5 trillion of stimulus is anticipated to be generated over the next few weeks.
All these positives will encourage long-term investors to buy fundamentally-robust stocks. And considering growth prospects of tech companies, it makes sense to invest in the space for long-term gains.
However, picking the right stock could be tedious.
Strategy to Pick Stocks
With the help of our Zacks Stock Screener, we’ve cherry picked four top-ranked technology stocks that have witnessed upward earnings estimate revisions in the last 30 days. Notably, Zacks empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements. A positive trend is, of course, favorable here and vice-versa in a negative trend scenario.
Additionally, each of the four stocks currently carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
To narrow down the list, we have selected those with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Avid Technology AVID is anticipated to benefit from increasing recurring revenues, driven by growth in subscriptions and long-term agreements already signed. An expanding paid subscriber base and growing adoption of creative tools, owing to solid demand for the media, graphics and cloud solutions, are tailwinds.
The company currently sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings moved up more than 6% over the past 30 days.
The Rubicon Project RUBI provides technology solutions to automate the purchase and sale of digital advertising inventory for buyers and sellers in the United States and internationally. The company is expected to continue benefiting from momentum in programmatic ad buying, and continued strength in mobile video and mobile in-app spending.
At present, the stock flaunts a Zacks Rank #1 and has VGM Score of B. The Zacks Consensus Estimate for 2020 earnings moved more than 33% north in the past 30 days.
MagnaChip Semiconductors MX growth prospects look promising. The lockdown situation has spurred significant chip demand from PC manufacturers and data-center operators. Also, ongoing digitalization, rapid adoption of cloud, AI and machine learnings integration, 5G deployment, IoT etc. are long-term growth prospects.
The Zacks Consensus Estimate for ongoing-year earnings climbed nearly 5% in 30 days’ time. The stock currently carries a Zacks Rank #2 and has a VGM Score of A.
CrowdStrike CRWD currently, carries a Zacks Rank #2 and has VGM Score of B. The Zacks Consensus Estimate for fiscal 2021 is pegged at a loss per share of 12 cents, narrower than the loss of 21 cents projected 30 days ago.
As more and more organizations start to work remotely amid the coronavirus crisis, their cybersecurity needs are likely to spike. Notably, the rising number of work-from-home employees is aggravating security lapses, inducing risks of hacking and phishing scams using coronavirus as content of the subject. In addition, usage of own devices and equipment that are not properly configured or can be infected with malware during teleworking further raises possible security breaches for enterprises.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Click to get this free report Avid Technology, Inc. (AVID) : Free Stock Analysis Report Technology Select Sector SPDR ETF (XLK): ETF Research Reports MagnaChip Semiconductor Corporation (MX) : Free Stock Analysis Report The Rubicon Project, Inc. (RUBI) : Free Stock Analysis Report CrowdStrike Holdings Inc. (CRWD) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research