Wall Street’s tech bigwigs are having a ball this year. The Information Technology sector of the S&P 500 has risen more than 30% on a year-to-date basis, making it the best-performing sector. What’s more, tech’s upward journey is far from over. Per data from Kensho, the tech sector had advanced between 20% and 40% from January through July in just five occasions since 1990. During such occasions, the tech sector remained in the green for the rest of the year. In fact, tech stocks had gained around 24% during these periods. The broader S&P 500 also gained close to 11% between August and December during such periods.
But data from Kensho shows that the tech sector generally tends to underperform when the Fed starts cutting interest rates. And this time around, Fed did trim rates by a quarter percentage point. However, Fed Chair Jerome Powell dropped hints of going patient with further rate cuts, and that’s good news for the tech sector. He categorically mentioned that the present cut wasn’t the beginning of a long easing cycle.
What’s more, nothing has been able to slow tech down of late. Recently, big tech companies were subjected to antitrust investigations by the U.S. Department of Justice. Still, the tech-laden Nasdaq was able to scale an all-time high.
By the way, the trade war between the United States and China is far from over and tech stocks are in crosshairs of both the governments. American and Chinese negotiators finished their trade talks with little progress. Treasury Secretary Steven Mnuchin and top trade negotiator Robert E. Lighthizer and their Chinese counterparts started the talks on a positive note, but around the same time, President Trump accused China of failing to keep its promises. In fact, Trump added that a deal is highly unlikely before the 2020 United States presidential election.
Despite such serious concerns, tech stocks have been able to report promising earnings results, with semiconductor stocks remaining upbeat about their outlook even though their chip business is exposed to trade tensions.
We have results from 76.6% S&P 500 tech companies so far. For these companies, earnings may be down 3.8% from the same period last year but revenues are up 6.1%, with 71.9% beating EPS estimates and 59.4% trumping revenue estimates (read more: Making Sense of Q2 Earnings Results).
Given such bullishness, investing in some of the biggest and best known Silicon Valley stocks seems judicious. Needless to say, Silicon Valley is the heart of the technology sector. Here are a few of them —
Alphabet Inc. GOOGL provides online advertising services. The company operates through Google and Other Bets segments. Alphabet was founded in 1998 and is headquartered in Mountain View, CA.
The company’s sales and outlook are improving on its success in the lucrative cloud computing market. Alphabet now holds the third position in the cloud business, behind Amazon.com, Inc. AMZN and Microsoft Corporation MSFT.
Investors are also seeing upbeat results from other business lines of Alphabet, including the self-driving car unit. Waymo, a unit of Alphabet, had launched its first driverless-car service in Arizona last December and vowed to proceed “carefully” with the technology.
The company has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has risen 6.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 12.8%, more than the Internet – Services industry’s estimated rise of 7.6%. The company has outperformed the broader industry so far this year (+16.5% vs +6.8%).
Cisco Systems, Inc. CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry. The company was founded in 1984 and is headquartered in San Jose, CA.
Order growth in new markets for Cisco Systems remains encouraging and the company continues to progress by leaps and bounds banking on innovative ideas, product range, growth initiatives and dividend payout.
The company has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has risen 2.5% over the past 90 days. The company’s expected earnings growth rate for the current quarter is 10% against the Computer – Networking industry’s estimated decline of 14.3%.
The company has outperformed the broader industry over the past year (+30.3% vs +29.9%).
eBay Inc. EBAY operates commerce platforms connecting various buyers and sellers. The company’s Marketplace platforms include its online marketplace at ebay.com and the eBay suite of mobile apps. eBay was founded in 1995 and is headquartered in San Jose, CA.
eBay’s focus on user experience, strengthening Marketplaces business, opportunities in the fast-growing mobile space, solid international expansion and a strong balance sheet remain positives.
The company has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has risen 1.9% over the past 60 days. The company’s expected earnings growth rate for the current quarter is 16.1% against the Internet – Commerce industry’s estimated decline of 2.2%. The company has outperformed the broader industry over the past year (+24% vs -10.5%).
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