Tech's Blowout Earnings Drive Nasdaq Gains: 5 Top Picks

A slew of upbeat earnings from tech stocks helped the Nasdaq reverse a five-day losing streak on Apr 26. Facebook, Inc. FB pulled off an impressive earnings show that allayed fears for investors. This in fact showed that FANG stocks – Facebook, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX and Google, whose parent company is Alphabet Inc. GOOGL – still have the bite despite an intensely volatile year so far. Even chipmakers notched promising results that eased concerns about weak demand for smartphones. Favorable government policies, in fact, are set to drive first quarter earnings growth for tech companies.

Let’s take a look at tech stocks that are likely to see a promising first quarter.

Facebook Earnings Look Past Data Privacy Scandal

Facebook has been under tremendous pressure following the uproar over its user data fiasco. Everyone has raised questions over how Cambridge Analytica, which worked on Trump’s election campaign, had gained access to personal data of roughly 87 million Facebook users without their knowledge. But, the company shrugged off such dilemmas with blowout quarterly results.

Facebook posted first-quarter profits of $4.99 billion that topped analysts’ estimate of $4.01 billion, while the social media giant added 70 million users in the same period despite numerous public calls against the social media app. Facebook currently boasts 1.45 billion daily users and nearly 2.2 billion monthly members.

The company saw its shares pop more than 4% following the earnings report, up 7% after its conference call. Chief Executive Mark Zuckerberg said in the conference call that “despite facing important challenges, our community and business are off to a strong start in 2018” (read more: Facebook Q1 Earnings Top Estimates, User Growth Solid).

Facebook’s Q1 Shows That FANG Stocks Still Have Bite

Many market pundits, in the past several weeks, had questioned whether Internet and technology behemoths have more room to run as they were end of a major multiyear rally. FANG stocks, especially, have come under heavy gyration this year. However, the strength among FANG stocks got validation following Facebook’s strong quarterly results.

But, why just Facebook? Amazon and Netflix have also given incredible performance. Amazon’s first-quarter profits more than doubled from year-ago levels, while sales continued to gain on an increase in Prime subscription prices. The Prime membership service reached 100 million subscribers after adding the highest number of members in 2017. In fact, the total count of Amazon Web Services active users, including the Prime numbers, was up 250% last year (read more: Amazon's Retail & Budding Web Services Make It a Real Deal).

While Amazon’s shares have rallied more than 30% so far this year, Netflix has doubled that. And it’s partly because of its strong quarterly performance. Netflix posted $290.1 million in net income in the first quarter, higher than the profits generated by the streaming giant in the entire year of 2016. And if the company is able to meet its forecasted $358-million profit in the second quarter, it will be able to earn more than what it generated in 2017. An expanding customer base along with higher prices for the streaming service gave a boost to Netflix’s revenues (read more: Netflix Subscriber Growth Breezes Past Estimates! Snap It Up).

Google, whose parent company is Alphabet, saw its earnings jump more than 70% in the first quarter even though capital outlays tripled from the year before. Earnings jumped on a change in accounting policy that compelled it to recognize the value of its stake in Uber (read more: Alphabet Q1 Earnings & Revenues Beat Estimates).

Microsoft Heads for a Record, Chip Makers Rally

Microsoft Corporation’s MSFT shares rose more than 3% in the extended session after finishing up 2.1% to $94.26 during regular trading period. Microsoft stocks just need to climb to the $130 mark, to reach the coveted milestone of $1 trillion market cap.

The Redmond, Wash.,-based company saw its shares scale higher after upbeat fiscal third-quarter earnings. In fact, each of the company’s major business segments, including Productivity and Business Processes, Intelligent Cloud, and More Personal Computing, came out with results that exceeded analysts’ expectations (read more: Microsoft Tops Estimates, Intelligent Cloud Revenue Up 17%).

Intel Corporation’s INTC shares also climbed 7% after hours, following an uptick of 3.3% to close at $53.05 in the regular session. The chipmaker’s shares surged after earnings topped Wall Street estimates and PC-based sales came in better than expected (read more: Intel Stock Soars on Earnings Beat, Strong Guidance).

Shares of other major chipmakers, including Advanced Micro Devices and Qualcomm, moved north on similar positive reports and lessened concerns over softening smartphone demand.

Q1 Tech Earnings to be Double-Digits

Tech earnings in the first quarter, largely, continue to be stronger than expected amid rising interest rates on higher inflation expectations and geopolitical concerns. While the recent tax cut has given the much needed windfall to the broader tech sector, cloud computing, artificial intelligence and big data are expected to remain growth areas.

Total Q1 earnings for the Tech sector are expected to be up 20.9% from the same period last year on 11.5% higher revenues. This would follow 24.2% earnings growth for the sector on 11.1% revenue growth in the preceding quarter.

5 Solid Picks

Tech giants started the first quarter with a bang, while the overall sector is poised to register double-digit growth. Thus, investing in tech stocks expected to report a significant jump in Q1 earnings seems judicious.

We have, thus, selected five such stocks that have a positive Earnings ESP. This 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. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Novanta Inc. NOVT designs, manufactures, markets, and sells photonics, vision, and precision motion components and sub-systems to original equipment manufacturers in the medical and industrial markets. The company has a Zacks Rank #2. It is expected to report earnings results for the quarter ending March on May 8. Novanta has an Earnings ESP of +3.80%. The company’s expected earnings growth rate for the current year is 20%.

Pegasystems Inc. PEGA develops, markets, licenses, and supports software applications for marketing, sales automation, customer service, and operations in the United States and internationally. The company has a Zacks Rank #1. It is expected to report earnings results for the quarter ending March on May 9. Pegasystems has an Earnings ESP of +5.09%. The company’s expected earnings growth rate for the current year is 43%.

Seagate Technology plc STX provides data storage technology and solutions. The company has a Zacks Rank #1. It is expected to report earnings results for the quarter ending March on May 1. Seagate Technology has an Earnings ESP of +3.43%. The company’s expected earnings growth rate for the current year is 21.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortinet, Inc. FTNT is a provider of network security appliances. The company has a Zacks Rank #2. It is expected to report earnings results for the quarter ending March on May 3. Fortinet has an Earnings ESP of +2.70%. The company’s expected earnings growth rate for the current year is 36.5%.

Littelfuse, Inc. LFUS designs, manufactures, and sells circuit protection products. The company has a Zacks Rank #2. It is expected to report earnings results for the quarter ending March on May 2. Littelfuse has an Earnings ESP of +1.10%. The company’s expected earnings growth rate for the current year is 10.6%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.     

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.  

See the pot trades we're targeting>>                                    

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
 
Seagate Technology PLC (STX) : Free Stock Analysis Report
 
Fortinet, Inc. (FTNT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Pegasystems Inc. (PEGA) : Free Stock Analysis Report
 
Littelfuse, Inc. (LFUS) : Free Stock Analysis Report
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
Novanta Inc. (NOVT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research