Lockdown restrictions across the world, in a bid to curb the spread of COVID-19, have been taking a toll on the economy. The pandemic has caused disruptions across major sectors and economic zones, resulting in a full-blown global crisis due to the slowdown in productions and operations, and sluggish spending patterns.
As a result, second-quarter corporate earnings are expected to have suffered significantly. According to the latest Zacks Earnings Preview article, total earnings for the S&P 500 members will likely be down 44.8% year over year on 10.7% lower revenues in the to-be-reported quarter.
Though the coronavirus outbreak has had a sector-wide impact, the U.S. tech sector seems more resilient compared with the other sectors. Per the Earnings Preview article, tech sector earnings are expected to decline 13.3% on 1.1% lower revenues.
Why Tech Sector Could Outperform?
The coronavirus outbreak has, surprisingly, opened up newer avenues of growth for several industries in the broader tech sector. Due to the global lockdown, the adoption rate of Internet-based services and apps has been increasing rapidly as people are compelled to stay indoors.
Moreover, the work-from-home wave is bolstering demand for advanced technology-based virtual meetings and conference tools. Additionally, the work-and-learn-from-home necessity has propelled demand for PCs, notebooks, peripheral accessories, and cloud storage.
All these, in turn, are aiding growth for high speed Internet services. Additionally, the rising demand for robust communication networks is another positive. Further, the growing proliferation of AI technology, and cloud computing products and services in managing this pandemic situation is a tailwind.
All these trends are stoking demand for semiconductor chips. Notably, Micron Technology MU reported better-than-expected third-quarter fiscal 2020 results last month. The company stated that the lockdown situation has spurred significant chip demand from data-center operators.
Apart from these, the adoption rate of streaming services for entertainment has surged in this ‘stay at home’ scenario.
All these positives will encourage investors to buy tech stocks.
As the second-quarter earnings season has already begun, we believe estimate-beating stocks will be the most important ones from an investment point of view. We consider investors should always hunt for such stocks before an earnings release. This strategy would place them ahead of time, and help bet on stocks that are rich in quality and have higher chances of beating earnings estimates.
How to Make the Right Pick?
With the presence of several industry participants, finding the right technology stocks with the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes this task fairly simple.
You could narrow down your choices by looking at the stocks that have the perfect combination of the two key elements: a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining the stocks that have the maximum chances of beating estimates at their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this apt mix of ingredients, the odds of a positive earnings surprise are as high as 70%.
Prominent Picks
Given below are five technology stocks that have favorable combinations to beat on earnings this reporting cycle:
Netflix NFLX is scheduled to report second-quarter 2020 results tomorrow. The company currently carries a Zacks Rank of 2 and has an Earnings ESP of +2.27%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has moved up a penny to $1.84 per share in the last seven days.
Twitter TWTR is slated to announce quarterly numbers on Jul 23. The company currently carries a Zacks Rank of 3 and has an Earnings ESP of +170.97%. The Zacks Consensus Estimate has remained unrevised at a loss of 3 cents per share over the past month.
Facebook FB is set to release June-end quarter figures on Jul 29. The company carries a Zacks Rank of 3 and has an Earnings ESP of +10.07%, at present. The consensus estimate for the quarter under review has been revised upward by a penny to $1.42 per share over the past week.
Google’s parent Alphabet GOOGL has an Earnings ESP of +3.73% and carries a Zacks Rank of 3 at present. The company will report second-quarter results on Jul 30. The consensus estimate for quarterly earnings has been revised upward by five cents to $8.23 per share over the past week.
Xilinx XLNX is set to report first-quarter fiscal 2021 numbers on Jul 30. The company has an Earnings ESP of +1.09% and carries a Zacks Rank of 3 currently. The consensus estimate for earnings has been raised by a penny to 62 cents per share in 30 days’ time.
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