- 12 января 2018, 22:04
- Zacks Investment Research
Technology stocks had a prolific run in 2017, courtesy of the rapid adoption of cloud-based platforms, increasing demand for Artificial Intelligence (AI) tools and significant progress in developing advanced driver assisted system (ADAS) solutions.
Moreover, Augmented/Virtual (AR/VR) reality devices became part of the mainstream technology market driven by significant investments from tech bigwigs — Apple, Microsoft, Samsung and Facebook.
Further, Internet of Things (IoT) technology made rapid strides in 2017. Consumer as well as industrial products and machines were embedded with sensor technology to process data or interact with other electronic devices.
According to latest Earnings Trend, technology sector’s fourth-quarter earnings are expected to improve 14% from the same period last year on 8.5% higher revenues.
Semiconductors Biggest Gainers
Semiconductors are primarily gaining from strong demand for power-efficient and high-performance chips. These are essential to run cloud-data centers and process massive data by using IoT analytics, machine learning and deep learning applications.
Moreover, the rapidly expanding IoT market is driving growth for chip components to power applications, particularly ADAS, medical/healthcare and smart devices. Further, rapid development of 5G platform and technology has evolved as another catalyst for semiconductor providers.
We believe that these emerging trends have provided much needed opportunity to semiconductor companies to offset loss of business due to the shrinking PC market which still consumes bulk of chips.
According to Gartner’s latest data, PC shipments in the quarter were down 2% year over year to 71.6 million units. The downside marked the 13th straight quarter of year-over-year fall, which is the longest duration of decline in the history of the PC industry.
However, IDC’s data contradicted Gartner’s figures due to different techniques used for tracking PC sales as well as the inclusion and/or exclusion of certain products. According to IDC, PC shipments touched 70.6 million units, marking year-over-year growth of 0.7% and outperforming the research firm’s previous prediction of a fall of 1.7%.
Cyber Security Stocks in Focus
2017 witnessed a plethora of cyber attacks. Two back-to-back ransomware attacks were reported — WannaCry or WannaCrypt in May and Petya in June — followed by the massive data breach at Equifax in September.
In addition to these, the data theft and ransom paid by Uber disclosed in November fueled the bullish momentum of the stocks in this space. Notable companies like Mondelez, FedEx, Merck & Co. suffered from cyber attacks during the year, which may have a material impact on their financial performances.
The frequency and severity of attacks have exposed the loopholes of the security systems deployed by enterprises worldwide. Further, with rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.
These factors increased demand for advanced cyber security solutions that drove stock prices of cyber security companies in 2017.
How to Make the Right Pick?
With the existence of a number of industry players, finding the right technology stocks that have the potential to beat earnings can be a daunting task. However, our proprietary methodology makes it fairly simple for investors.
You can narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Given below are four technology providers that have the right combination of elements to post an earnings beat this quarter:
Headquartered in Norwood, MA, Analog Devices Inc. (ADI) is riding on strength in all the end-markets and positive contributions from Linear Technology acquisition. The company’s leading market position, focus on communications, automotive and industrial markets and margin expansion initiatives are positives.
The company is expected to report first-quarter fiscal 2018 results on Feb 21. Currently, Analog Devices has an Earnings ESP of +2.12% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Santa Clara, CA-based Applied Materials Inc (AMAT) benefits from an innovative product pipeline supported by expanding opportunities on the semiconductor and display markets. Moreover, 3D NAND, DRAM and patterning have led to significant market share gains.
We note that Applied Materials beat the Zacks Consensus Estimate for earnings in all of the trailing four quarters, with an average positive earnings surprise of 2.82%.
This Zacks Rank #1 stock has an Earnings ESP of +0.57%. The company is set to report first-quarter fiscal 2018 results on Feb 21.
Santa Clara, CA-based NVIDIA Corporation (NVDA) benefits from the strong demand for its graphic chips. The company’s sustained efforts toward attaining robust position in several emerging industries such as AI, deep learning and self-driving vehicles presents significant opportunity for investors.
Notably, the company beat the Zacks Consensus Estimate in the last four quarters, with an average positive earnings surprise of 33.51%.
This Zacks Rank #1 stock has an Earnings ESP of +1.93%. The company is likely to report fourth-quarter fiscal 2018 results on Feb 8.
Irvine, CA-based, Western Digital Corporation (WDC) is gaining from strong demand for hard drive and NAND-based products from all categories of customers, largely driven by cloud and mobility-based applications.
This Zacks Rank #1 stock has an Earnings ESP of +1.43%. The company is set to report second-quarter fiscal 2018 results on Jan 25.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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
Western Digital Corporation (WDC): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Analog Devices, Inc. (ADI): Free Stock Analysis Report
Applied Materials, Inc. (AMAT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research