Stocks mentioned in this story: QCOM ACN GOOG GOOGL VMW FB MSFT EMC
Following a brief pullback in late June as a result of the Brexit vote, U.S. stock markets have roared ahead in July and August.
The Standard & Poor’s 500 index is up over 8 percent from its June lows and the technology-heavy Nasdaq composite has added over 13 percent.
In fact, the U.S. technology sector has outperformed all others over the past month with an 8.5 percent gain. These gains have been driven primarily by strong earnings in this sector from heavyweights such as Facebook (ticker: FB), Microsoft Corp. (MSFT) and others.
[See: 6 of the Overvalued Stocks on the Market.]
With the technology sector on a roll, it is worth investigating whether we can identify stocks poised to continue their price appreciation.
We used Recognia Strategy Builder to search for large-capitalization U.S. technology stocks displaying strong earnings growth in the long and short term, as well as reasonable valuations.
We set a minimum market cap threshold of $10 billion and focused on the largest and most stables companies in this sector.
Next, we filtered on price-earnings ratio. P/E is a measure of stock price valuation relative to the company’s earnings. To avoid overpaying for our investments, only companies with P/E of 40 or less were selected.
Last, to focus on companies with growing earnings, we limited our screen to companies with five-year historical EPS growth rates of at least 10 percent per year and quarterly EPS growth (last quarter versus prior year) of at least 5 percent.
Qualcomm (QCOM). Qualcomm is a San Diego-based manufacturer of semiconductor products for the telecommunication industry. Qualcomm also derives a significant portion of its revenue from patent licensing. With a low P/E of just 13.6 and extremely strong five-year EPS growth of 19.6 percent, it is not surprising that investors are driving up Qualcomm’s stock price. For the year, Qualcomm stock is up 23.5 percent with 13 percent of that coming in the last month. In July, the company also announced third-quarter results that surpassed expectations for both revenue and earnings. The company also offered upbeat guidance for the coming quarter with revenue expected to be at the high end of the current range.
[See: 10 Tips for Couples and Young Families to Build Wealth.]
Accenture (ACN). Accenture is the world’s largest consulting firm by revenue and has a market cap exceeding $72 billion. Accenture stock is up just over 8 percent for the year, though it has moved more or less sideways recently. Accenture also offers a 1.9 percent dividend and has a five-year dividend growth rate of 16.5 percent. These facts make Accenture a great technology stock for dividend growth investors.
Alphabet (GOOG, GOOGL). Formerly known as Google, this is the largest company by far on the list with a market cap of $555 billion. Though the search giant sports a fairly high P/E ratio of 31.3, investors feel Alphabet is worth the price due to its consistent EPS growth rate of 11.6 percent per year for the past five years. The stock has lately been hitting record highs and is now up 10.3 percent in the past month and up almost 18 percent in the past year. On July 28, Alphabet announced second-quarter results that exceeded analyst expectations for both revenue and earnings by a wide margin.
VMware (VMW). Cloud software provider VMware has the highest EPS growth rate on our list. With a five-year EPS growth rate of 23 percent per year, few companies of this size can match its growth rate. VMware is a subsidiary of EMC Corp. (EMC), with the parent company owning 85 percent of the total shares. In October 2015, it was announced that Dell had struck a deal to acquire EMC. Shares of VMware traded lower immediately on fears that the company would lose some of the autonomy it had under EMC. Though the stock has recovered some of its losses, it is still trading well down from its 52-week high achieved back in August 2015.
[Read: 7 Hot (or Not) Stocks in 2016.]
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia in respect of the investment in financial instruments. Investors should conduct further research before investing.