Wall Street is continuing its dream run in 2019 despite a sudden collapse of trade negotiations between the United States and China. What is more important is that the primary driving force of the market’s bull run is the technology sector, which was likely to be affected the most by lingering tariff-related conflicts. Meanwhile, second-quarter 2019 earnings expectations have improved gradually this month.
Better-Than-Expected Second-Quarter Earnings Results
As of Jul 30, 262 S&P 500 members reported second-quarter earnings results. Total earnings for these 262 index members are up 3.2% from the same period last year on 5.2% higher revenues. Notably, 77.6% companies surpassed EPS estimates while 56.3% beat revenue estimates.
At present, total second-quarter earnings for the S&P 500 Index are expected to remain flat with the year-earlier period on 4.1% higher revenues. This is a significant improvement over an earnings decline of 3.4% on 3.9% higher revenues, expected on Jul 12. Notably, Wall Street had witnessed negative earnings (0.2% earnings decline on 4.5% higher revenues) in the first quarter for the first time since the second quarter of 2016. (Read More: Tech Sector Earnings Driving the Overall Growth Picture)
Technology Sector Skyrockets in 2019
The technology sector carries the highest weightage (20.1%) within the 11 sectors of the broad-market S&P 500 Index. Technology stocks suffered a severe setback in 2018 and Technology Select Sector SPDR (XLK) declined 2.9%. The tech-laden Nasdaq Composite had plunged 3.9% last year.
However, in 2019, XLK is the best performer of the S&P 500, gaining a massive 32.3%, well above the benchmark index’s gain of 20.5%. Notably, on Jul 26, XLK touched its all-time high of 82.59. In July, XLK has gained 3.4% so far. Moreover, the tech-heavy Nasdaq Composite is also up 24.7% year to date.
Within the technology sector, the performance of semiconductors is worth mentioning as the industry had a rough 2018. The Philadelphia Semiconductor Index (SOX) was down 2.6% last year. However, SOX has advanced an astonishing 36.8% year to date and 6.4% so far in July.
Our Top Picks
At this stage, it will be prudent to invest in technology stocks with a favorable Zacks Rank. We have narrowed down our search to five such tech stocks that have popped in the past three months despite facing trade-induced market volatility. Each of these stocks carries a Zacks Rank #2 (Buy) and has a positive Earnings ESP.
Our research shows that for stocks with a combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to jump on their earnings release irrespective of already solid gains year to date.
BCE Inc. BCE is a telecommunications and media company, providing wireless, wireline, Internet, and television services to residential, business, and wholesale customers in Canada. It operates in three segments: Bell Wireless, Bell Wireline, and Bell Media.
BCE has an Earnings ESP of +0.83% for the current quarter. The company has an expected earnings growth rate of 4.6% for the current quarter. The Zacks Consensus Estimate for the current year improved 1.9% over the last 30 days.
The company delivered positive earnings surprise in three out of the last four quarters with an average beat of 0.7%. The stock has gained 2.2% in the past three months. BCE is expected to release earnings results on Aug 1, before the opening bell.
Vonage Holdings Corp. VG offers consumers and small businesses an affordable alternative to traditional telephone service by providing cloud communications services. It operates through two segments, Business and Consumer.
Vonage has an Earnings ESP of +47.37% for the current quarter. The company delivered positive earnings surprise in three out of the last four quarters with an average beat of 7.6%. The stock has jumped 29.9% in the past three months. Vonage is expected to release earnings results on Aug 6, before the opening bell.
CACI International Inc. CACI provides information solutions and services in North America and internationally for today's new era of defense, intelligence and e-government.
CACI International has an Earnings ESP of +4.02% for the current quarter. The company has an expected earnings growth rate of 3.4% and 13.3% for the current quarter and year, respectively. The Zacks Consensus Estimate for the current quarter and year improved 0.5% over the last 30 days.
The company delivered positive earnings surprise in the last four quarters with an average beat of 25.9%. The stock has climbed 13.3% in the past three months. CACI International is expected to release earnings results on Aug 14, after the closing bell.
Cisco Systems Inc. CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry worldwide. It offers switching products, routing products that interconnect public and private wireline and mobile networks, data center products and wireless access points for use in voice, video and data applications.
Cisco Systems has an Earnings ESP of +1.53% for the current quarter. The company has an expected earnings growth rate of 17.1% and 18.5% for the current quarter and year, respectively. The company delivered positive earnings surprise in the last four quarters with an average beat of 2.1%. The stock has gained 1.6% in the past three months. Cisco Systems is expected to release earnings on Aug 14, before the opening bell.
Ciena Corp. CIEN provides network hardware, software, and services that support the transport, switching, aggregation, service delivery, and management of video, data and voice traffic on communications networks worldwide.
Ciena has an Earnings ESP of +5.26% for the current quarter. The company has an expected earnings growth rate of 43.9% for the current year. The Zacks Consensus Estimate for the current quarter and year improved 16.3% and 10.5%, respectively, over the last 30 days.
The company delivered positive earnings surprise in the last four quarters with an average beat of 18.8%. The stock has surged 18.9% in the past three months. Ciena is expected to release earnings results on Aug 29.
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