Tech Sector Rallies Amid Coronavirus Resurgence: 5 Top Picks

Wall Street's impressive V-shaped recovery from the coronavirus-led bear market and the formation of a new bull market suffered halts in the past three weeks owing to a second surge in the COVID-19 outbreak. However, irrespective of the resurgence of the pandemic or the possibility a delay in economic recovery, the technology sector is rallying, defying all hurdles.

Meanwhile, in the past month, a handful of large-cap stocks (market capital > $10 billion) skyrocketed with more than 20% return when the broader market tumbled from the soaring growth it witnessed since the last week of March.

Technology Sector is the Best

The technology sector is holding ground, defying coronavirus-induced severe volatility. The Technology Select Sector SPDR (XLK), one of the 11 broad sectors of the S&P 500 index, recorded its all-time closing high at 107.72 on Jul 8. Just a day before, the XLK recorded an all-time intraday high of 108.07.

Moreover, the XLK is positive year to date with a gain of 17.5%. The Communication Services Select Sector SPDR (XLC) and the Consumer Discretionary Select Sector SPDR (XLY) are the other two sectors to remain in green year to date with a gain of 5.6% and 5.2%, respectively. The S&P 500 is down 1.9% year to date.

Notably, in the past month, when volatility returned to Wall Street thanks to a spike in new COVID-19 cases, the XLK remained firm offering 5.7% return. The XLC is the other sector to have remained in green past month with a marginal gain of 0.2%. The benchmark itself dropped 1.9% past month.

Nasdaq Composite Outperforms Dow and S&P 500

On Jul 8, the tech-heavy Nasdaq Composite recorded a fresh closing high of 10,492.50, it’s 25th this year. Year to date, the tech-laden index has rallied 16.9%, while the broad-market S&P 500 index is down 1.9% and the blue-chip Dow is yet to recover 8.7% to enter positive territory in 2020.

The last few years witnessed a series of breakthroughs in cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, which have set the stage for robust growth for technology stocks. In this regard, large-scale commercial deployment of 5G wireless network has boosted the overall technology sector.

Coronavirus Boosts Digitization

Meanwhile, the outbreak of the coronavirus globally has established digitization as the new normal for what is being touted as going to be a very long time. And as social distancing is making the heart grow fonder, people, especially citizens of emerging and less developed countries, are reaching out more than ever with smartphones, tablets or notebooks.

The thrust for digitization is likely to come from two sides. Individuals who enjoy immense benefits of digital platforms are less likely to go back to their old habits. The new way of connecting to one other has opened a new world for them. Also, business entities will be more interested in cloud computing, automation and artificial intelligence to establish smooth supply chain systems.

Our Top Picks

At this stage, it will be prudent to invest in large-cap tech stocks with a favorable Zacks Rank. We have narrowed down our search to five such stocks that have strong growth potential for 2020 and robust EPS estimate revisions. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart blow shows the price performance of our five picks in the past month.

 

Etsy Inc. ETSY operates online market places for buyers and sellers primarily in the United States, the U.K., Canada, Australia, France and Germany. Its online market places include Etsy.com and Reverb.com.

The Zacks Rank #1 company has an expected earnings growth rate of 46.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 5.7% over the last 30 days. The stock has jumped 40.2% in the past month.

Zoom Video Communications Inc. ZM provides a video-first communications platform worldwide. Demand for its remote work platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or any effective treatment for coronavirus is developed.

The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved by 6.3% over the last 30 days. The stock has surged 20.5% in the past month.

Shopify Inc. SHOP provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia and internationally.

The Zacks Rank #2 company has an expected earnings growth rate of 70% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 37.8% over the last 60 days. The stock has soared 36.8% in the past month.

Cloudflare Inc. NET provides an integrated cloud-based security solution to secure a range of combination of platforms, including public cloud, private cloud, on-premise, software-as-a-service applications and IoT devices worldwide.

The Zacks Rank #2 company has an expected earnings growth rate of 60.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 5% over the last 60 days. The stock has climbed 30.6% in the past month.

Datadog Inc. DDOG provides monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud in the United States and globally.

The Zacks Rank #2 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by more than 100% over the last 60 days. The stock price has rallied 22.8% in the past month.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?

Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

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Etsy, Inc. (ETSY) : Free Stock Analysis Report
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
Cloudflare, Inc. (NET) : Free Stock Analysis Report
 
Datadog, Inc. (DDOG) : Free Stock Analysis Report
 
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