While most tech stocks soared to unprecedented highs last year driven by investor exuberance, investors have been rotating out of tech stocks this year. This change in sentiment can be attributed to the reopening economy, which is motivating investors to seek undervalued cyclical stocks that have the potential to gain from the economic recovery at the expense of expensive tech stocks. Investors’ pessimism on tech stocks is evident in Technology Select Sector SPDR ETF’s (XLK) 6.5% gains so far this year compared to SPDR S&P 500 ETF Trust’s (SPY) 12.4% returns.
Given rising inflation, many analysts are speculating a stock market crash in the near term. Should that happen, it would be wise to scoop up the shares of quality tech stocks companies that look expensive now but might trade at a discount at that time. After all, the tech industry has the potential to rebound quickly from any slump given the increasing demand for its products and services. According to GoRemotely, the tech industry is expected to hit a $5 trillion market value by the end of 2021.
Apple Inc. (AAPL), Alphabet Inc. (GOOGL), SAP SE (SAP), Applied Materials, Inc. (AMAT), and STMicroelectronics N.V. (STM) are expected to gain significantly in the near- to-midterm. So, we think it would be wise to bet on them at lower prices if there is a market correction.
Apple Inc. (AAPL)
The iPhone maker AAPL also offers Mac, iPad, AirPods and Apple TV, to name a few of its household name products. In addition, the company offers various services, such as Apple Arcade, Apple Music and Apple News+. The verdict is still out on the AAPL versus Epic Corp.’s antitrust trial, but AAPL’s market dominance is unparalleled.
For its fiscal first quarter, ended March 27, 2021, AAPL’s total revenue increased 61.6% year-over-year to $72.70 billion. Its net income increased 110.1% from the same period last year to $23.63 billion. And its EPS came in at $1.41 for the quarter, up 120.3% year-over-year.
The company’s EPS and revenue are expected to increase 52.1% and 25.3%, respectively, year-over-year to $1.11 and $81.05 billion for the quarter ending September 30, 2021. AAPL surpassed consensus EPS estimates in each of the trailing four quarters.
On May 17, AAPL announced that Apple Music was bringing industry-leading sound quality to subscribers with the addition of Spatial Audio, with support for Dolby Atmos. This is expected to expand the company’s consumer base. The stock has gained 56.2% over the past year to close Friday’s trading session at $124.61.
AAPL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Sentiment and Quality. Click here to access AAPL’s ratings for Stability, Momentum, Growth and Value also.
AAPL is ranked #19 of 47 stocks in the B-rated Technology-Hardware industry.
Alphabet Inc. (GOOGL)
GOOGL’s Google Services segment delivers services that include Chrome, hardware, Google Maps, Google Play, Search, and YouTube, which are used by billions of people worldwide each day. Its Google Cloud segment offers infrastructure and data analytics platforms, and its Other Bets segment sells internet and TV services, among others.
The company’s sales surged 34.4% year-over-year to $55.31 billion for the first quarter, ended March 31. GOOGL’s net income was $17.93 billion for the quarter, up 162.3% from the prior-year period. And its EPS increased 166.4% year-over-year to $26.29.
Analysts expect GOOGL’s EPS and revenue to increase 90% and 46.5%, respectively, year-over-year to $19.25 and $56.11 billion for the current quarter, ending June 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
Google Cloud and Elon Musk’s SpaceX announced a new partnership on May 13 to deliver data, cloud services, and applications to consumers at the network edge, leveraging Starlink’s ability to provide high-speed broadband internet around the world and Google Cloud’s infrastructure. The collaboration is expected to boost the company’s growth leveraging its advanced cloud infrastructure. The stock has rallied 66.2% over the past year to close Friday’s trading session at $2,356.85.
GOOGL’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. It also has an A grade for Sentiment, and a B grade for Quality. In addition to these ratings, one can see GOOGL’s ratings for Stability, Value, Growth and Momentum here.
GOOGL is ranked #1 of 71 stocks in the Internet industry.
SAP SE (SAP)
Based in Germany, SAP develops enterprise application software. The company operates through three segments: Applications, Technology & Services, and the SAP Business Network segment. The company’s offerings include SAP S/4HANA, SAP Intelligent Asset Management, and SAP Ariba, among others.
SAP’s IFRS cloud revenue came in at €2.15 billion ($2.62 billion) for the first quarter ended March 31, which represents a 7% year-over-year rise. The company’s IFRS profit after tax came in at €1.07 billion ($1.31 billion), up 32% year-over-year. Its IFRS EPS for the quarter was €0.88, up 29.4% year-over-year.
SAP’s EPS is expected to increase 8.8% year-over-year to $1.49 for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. Analysts expect SAP’s revenue to be $8.26 billion for the quarter ending September 30, 2021, which represents a 5.9% year-over-year rise.
On May 20, 2021, SAP announced that it has integrated advanced support into its solutions to deliver the intuitive experience modern business users demand. Andreas Heckmann, the company’s executive vice president and head of Customer Solution Support & Innovation said, “Just as the RISE with SAP package brings together everything you need to transform your business in the cloud that works best for the customer, SAP now offers a matching intuitive, connected and holistic support experience that helps make it easy for businesses to improve operational reliability and efficiency.” The stock has gained 17.3% over the past six months to close Friday’s trading session at $139.93.
It’s no surprise that SAP has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Stability, Sentiment, Value and Quality. Click here to see the additional POWR Ratings for SAP (Momentum and Growth).
SAP is ranked #3 of 125 stocks in the Software-Application industry.
Click here to check out our Software Industry Report for 2021
Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.
For its fiscal second quarter, ended May 2, 2021, AMAT’s total revenue increased 41.1% year-over-year to $5.60 billion. Its net income increased 76.2% from the same period last year to $1.33 billion. And its EPS was $1.43 for the quarter, up 74.4% year-over-year.
Analysts expect AMAT’s EPS and revenue to increase 44.8% and 28.9%, respectively, year-over-year to $1.81 and $6.04 billion for the quarter ending October 31, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
The company introduced materials engineering solutions on May 5. They provide its memory customers with three new ways to further scale DRAM and accelerate improvements in chip performance, power, area, cost and time to market. The stock has soared 152.7% over the past year to close Friday’s trading session at $138.13.
AMAT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It also has a B grade for Momentum and Quality. In addition to these ratings, one can see AMAT’s ratings for Value, Sentiment, Growth and Stability here.
AMAT is ranked #26 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs, develops, manufactures, and markets semiconductor products internationally. Its segments include Automotive and Discrete Group (ADG), Analog, MEMS and Sensors Group (AMS), and Microcontrollers and Digital ICs Group (MDG).
The company’s sales surged 35.2% year-over-year to $3.01 billion for its fiscal first quarter, ended April 3, 2021. STM’s net income was $364 million for the quarter, up 89.6% from the prior-year period. And its EPS increased 85.7% year-over-year to $0.39.
For the current quarter, ending June 30, 2021, analysts expect STM’s EPS and revenue to increase 270% and 38.4%, respectively, year-over-year to $0.37 and $2.89 billion. It surpassed the Street’s EPS estimates in three of the trailing four quarters.
On May 27, China’s Magic Information launched a smart-lock reference design based on AIoT fingerprint recognition that runs on a STM’s STM32WB55 Bluetooth LE (BLE) microcontroller (MCU) that manufacturers can integrate into their designs to make smart locks. This is expected to provide a boost to the company’s revenue. The stock has gained 55.7% over the past year to close Friday’s trading session at $37.34.
It’s no surprise that STM has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, Sentiment and Quality. Click here to see the additional POWR Ratings for STM (Stability and Momentum).
STM is ranked #4 in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
AAPL shares were trading at $124.32 per share on Tuesday afternoon, down $0.29 (-0.23%). Year-to-date, AAPL has declined -6.01%, versus a 12.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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