From July 14th - July 19th, the S&P 500 encountered a major bout of selling and dropped by 3.2%. Since then, it’s put together an impressive bounce and has recovered more than half its losses. Despite concerns about slowing global growth and the Delta variant, the stock market is being supported by the decline in longer-term rates and expectations of another strong earnings season.
Both of these developments are positive for technology stocks. In addition, the pullback in tech stocks since November have given them more attractive valuations for investors looking for cheaper entry points.
With this in mind, here are three tech stocks that I believe are on their way to reach new 52-week highs: Microsoft (MSFT), Broadcom (AVGO), and Jabil (JBL).
Microsoft (MSFT)
MSFT is one of the largest technology companies in the world with over a $2 trillion market capitalization. The company’s segments include Productivity and Business Processes; Intelligent Cloud; and More Personal Computing. It is also known for its cloud computing arm, Microsoft Azure.
MSFT is scheduled to release its fiscal Q4 earnings next week, and analysts are expecting another strong quarter of growth. Last quarter, it had 19% revenue growth and a 38% increase in net income. Based on early readings from other tech companies, corporate tech expenditures continue to trend higher.
In Q4, analysts expect MSFT’s EPS to increase 34.9% year-over-year to $7.77 in its fiscal year 2021. It surpassed consensus EPS estimates in each of the trailing four quarters.
Despite this strong earnings momentum and its stock price appreciation, MSFT’s valuation has improved with its P/E ratio declining from 50 to 38 over the last six months. Investors should take advantage of this opportunity as the stock is showing considerable momentum by breaking out to new highs this week.
It’s no surprise that MSFT has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. B-rated stocks have posted an average annual return of 19%, outpacing the S&P 500’s average 7% gain. To see more of MSFT’s POWR Ratings, click here.
Click here to check out our Software Industry Report for 2021
Broadcom (AVGO)
Worth nearly $200 billion, AVGO develops and supplies a range of semiconductor and infrastructure software solutions. The company serves critical markets, including data center, networking, enterprise software, broadband, wireless, storage, and industrial.
Since mid-February, the stock has been consolidating between $420 and $480. Given the strength in tech and gains in earnings, I’m confident that the stock can break out higher especially as the tightness in the semiconductor market continues.
Last quarter, AVGO had 15% revenue growth and a 28% increase in net income. For next quarter, analysts expect 14% revenue growth and a 27% jump in net income, an indication that its momentum is not slowing. Analysts will be watching gross and net margins for evidence of pricing power and inflation.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. A-rated stocks have an average annual performance of 30% which compares favorably to the S&P 500’s annual 7% return.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in AVGO for a 25% gain. Learn more about the RTR service here.
Jabil (JBL)
JBL delivers manufacturing services and solutions globally through two segments–Electronics Manufacturing Services and Diversified Manufacturing Services. The company also specializes in three-dimensional mechanical design that includes the analysis of electronic, electro-mechanical, and optical assemblies.
JBL broke out to new highs in early June and has been consolidating its breakout. Given the stock’s attractive fundamentals, I believe there is a good chance of a continuation. Wall Street analysts are also bullish on the stock as it has a $67 price target, implying nearly 20% upside. 4 out of 5 analysts covering the stock have a Buy rating.
Has expansion plans which involve a $25 million investment in its subsidiary Ecologic’s Manteca in California and the buildout of a new paper bottle plant in its Sustainability Center of Excellence in Tortosa, Spain. With these expansions, JBL wants to deliver Ecologic’s innovative pulp molding capabilities to new geographies. It also wants to enable the production of hundreds of millions of new paper packages.
JBL’s stock is also attractive in that it has a low forward P/E of 9.3 which is cheaper than the S&P 500 and the semiconductor industry. On top of this, analysts expect the company to generate $6 per share in earnings over the next 12 months which is a steep improvement over $3.83 in EPS over the last 12 months.
Given these positives, it’s not surprising that JBL has an overall rating of B, which translates to a Buy in our POWR Rating system. JBL also has strong component grades across the board. Given that Wall Street analysts are so constructive on its prospects, it makes sense that JBL has a B for Sentiment. Click here to see more of JBL’s component grades.
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MSFT shares rose $1.51 (+0.53%) in premarket trading Friday. Year-to-date, MSFT has gained 29.24%, versus a 17.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles.
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