Tech Emerges Savior in the Times of Coronavirus: 5 Picks

Despite the coronavirus pandemic and concerted anti-trust scrutiny, big tech companies reported blowout June-quarter earnings on Jul 30, surpassing Wall Street expectations. Apple Inc. AAPL, Amazon.com, Inc. AMZN, Alphabet Inc. GOOGL and Facebook, Inc. FB together racked up profits of almost $29 billion on sales of nearly $200 billion in the second quarter. 

 

And combined revenues for the four, excluding Alphabet’s traffic acquisition cost, or TAC, was $198.11 billion, beating Wall Street’s expectations of combined revenues of $181.5 billion, and way more than $165.7 billion in the year-ago quarter.

 

Interestingly, the big four tech companies reported stellar results a day after a five-and-a-half-hour-long grilling of their CEOs by house members in a historic antitrust hearing. Nonetheless, shares of the big tech companies in after-hour trading pushed toward a market cap increase of more than $200 billion. Currently, the big four tech companies’ worth is almost $5 trillion.

 

Apple displayed strength across all segments, especially the June quarter has been strong for Macs and iPads. In late trading on Jul 30, the iPhone maker’s shares rallied 6%, topping $400 a share for the first time. Notably, the company posted revenues of $59.7 billion and earnings per share of $2.58, beating analysts’ expectations of $52.1 billion and $2.09 a share.

 

Similarly, Amazon’s $88.9 billion in sales in the quarter ending June 2020 was nearly $8 billion higher than the company’s original guidance. Amazon’s second-quarter profit of $5.2 billion or $10.30 a share were also five times the consensus estimate. Despite Chief Executive Jeff Bezos spending a huge amount related to the COVID-19 pandemic, Amazon’s stunning results were mostly due to an uptick in e-commerce business of 47.8% from last year to $45.9 billion in the second quarter. Amazon’s stock rallied 5% in late trading on Jul 30.

 

Search giant Google’s parent Alphabet also registered revenues of $38.3 billion and profits of $10.13 a share in the said quarter, ahead of analysts’ expectations of $37.3 billion and $7.94 a share. YouTube and Cloud services have been the saving grace for Alphabet. YouTube’s ad business increased 6% from a year ago, while Google Cloud’s revenues climbed 43%. Alphabet rose 0.5% after hours.

 

The social network giant Facebook also posted revenues of $18.7 billion and profits of $1.80 a share, higher than expectations of $17.3 billion and $1.39, respectively. Facebook’s apps, including WhatsApp, Instagram and Messenger, witnessed a surge in traffic in the June quarter, helping the company report stunning results. After hours, Facebook’s shares were up 6.2% to $249, just short of its intra-day record high of $250.12.

 

Not just these big four, last week, Microsoft Corporation MSFT saw its Intelligent Cloud division rake in $13.4-billion sales for the fiscal fourth quarter against analysts’ estimate of $13.11 billion. Sales also grew 17% year over year. In fact, Microsoft reported fiscal fourth-quarter earnings of $11.2 billion or $1.46 a share on revenues of $38 billion. Analysts expected profit of $1.38 a share on sales of $36.59 billion.

 

What’s more, for the tech sector as a whole, second-quarter earnings are expected to decline 10.9% despite 0.3% higher revenues. But that’s far better compared to the overall earnings picture. This is because total earnings for the S&P 500 companies are projected to decline 41.1% on 8.9% lower revenues (read more: An Improving Earnings Outlook Despite Covid-19 Concerns).  

 

Basically, the broader tech sector has remained reasonably unscathed in the second quarter amid the current economic downturn owing the pandemic. This is primarily because investors saw that these companies have been gaining immensely from secular trends like cloud computing and robust telecommunications infrastructure — demand for which skyrocketed amid the health crisis.

 

Further, with majority of the population trapped at home with an Internet connection, trends like streaming media, video chats with friends and online connections with co-workers have picked up. These trends, in turn, have bolstered the need for newer technologies.

 

Another factor working in favor of tech shares is the receding threat of regulations. Before the pandemic, policymakers worldwide were devising plans to impose regulations on these companies but this has taken a back seat owing to the pandemic.

Invest in Tech Now: 5 Picks for the Rest of the Year & Beyond

As mentioned above, the pandemic hasn’t been able to diminish the allure of tech players. In fact, tech stocks continue to achieve new highs, propelling the broader stock market. This calls for keeping an eye on tech stocks that not only weathered the coronavirus panic but also have the potential to rally. These stocks currently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Shopify Inc. SHOP provides a multi-tenant, cloud-based, multi-channel commerce platform for small and medium-sized businesses (SMBs). The Zacks Consensus Estimate for its current-year earnings has moved up 11.8% over the past 60 days. The company’s expected earnings growth rate for current and next year is 90% and 17.5%, respectively. Its shares have risen 409% in the past four months.

 

TMobile US, Inc. TMUS is a national wireless service provider. The Zacks Consensus Estimate for its next-year earnings has risen 6.7% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 19.6%. Its shares have jumped 50.8% in the past four months.

 

Texas Instruments Incorporated TXN is an original equipment manufacturer of analog. The Zacks Consensus Estimate for its current-year earnings has moved up 26.6% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 9.3%. Its shares have risen 18.6% in the past four-month period.

 

Asure Software Inc ASUR is a provider of web-based workforce management solutions. The Zacks Consensus Estimate for its current-year earnings has climbed 27.6% over the past 60 days. The company’s expected earnings growth rate for the next five-year period is 18.9%. Its shares have advanced 5.5% in the past four-month period.

 

Calix, Inc CALX is a global leader in access innovation. The Zacks Consensus Estimate for its current-year earnings has moved more than 100% up over the past 60 days. The company’s expected earnings growth rate for the current and next year is 767% and 23.1%, respectively. Its shares have surged 170.7% in the past four-month period.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Texas Instruments Incorporated (TXN) : Free Stock Analysis Report
 
Calix, Inc (CALX) : Free Stock Analysis Report
 
Asure Software Inc (ASUR) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
TMobile US, Inc. (TMUS) : Free Stock Analysis Report
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
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