Major U.S. indices — the Dow Jones, the S&P 500, and the Nasdaq — witnessed sharp sell-off this week, as rising incidences of Coronavirus outside mainland China have been sending jitters among investors. Notably, COVID-19 has now spread in more than 44 countries, affecting more than 80,000 people, while roughly 2,800 people have already lost their lives.
The three major indices lost more than 4.5% yesterday, after the Centers for Disease Control and Prevention confirmed the first coronavirus case in the United States. The indices have declined more than 10% this week so far, eroding their entire 2020 gains until last week.
Coronavirus Dampening Tech Companies’ Demand and Supply
The coronavirus outbreak in China has hit the U.S. technology stocks hard. The country accounts for a major market, as well as is a supplier for tech products, including semiconductor components. A number of tech companies, including Apple (AAPL) , Microsoft (MSFT) , and HP have already warned investors that the novel Coronavirus would mar their businesses.
On Feb 17, Apple announced that it might be unable to meet its quarterly revenue expectations issued on Jan 28. The company noted that the Coronavirus outbreak has impacted its global iPhone supply and thwarted demand in China.
Earlier this week, leading PC maker, HP, said that COVID-19 will depress its top and bottom lines, and free cash-flow performances for second-quarter fiscal 2020. Another tech giant, Microsoft has also warned about a possible hit due to a supply-chain disruption in the PC market.
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Apple, Microsoft, and HP stocks have depreciated 12.6%, 11.4% and 3.6%, respectively, this week so far. Apart from these, the Technology Select Sector SPDR Fund (XLK) , which tracks the performance of U.S. tech stocks, has been down 13.4% this week.
Should You Buy Tech Stocks on Dip?
Though COVID-19 has now become a global pandemic, we believe it will have limited impact on U.S. tech companies. In fact, the recent dip makes tech companies attractive owing to the sector’s massive growth prospects, thanks to emerging technologies like AI and IoT. Further, rapid adoption of cloud computing, autonomous vehicles, gaming, wearables, drones and VR/AR devices are anticipated to keep fueling growth.
The Oracle of Omaha, Warren Buffett also believes that the recent sell-off has opened up a good buying opportunity. In a CNBC interview on Feb 24, Buffett said that though the Coronavirus outbreak might trigger a slowdown in global growth, he won’t sell stocks.
He opines that the current stock-market situation is “good for us.” Buffett noted, “Most people are savers, they should want the market to go down. They should want to buy at a lower price.”
Additionally, tech companies are cash rich, which provides the cushion to remain afloat amid adverse business environment.
Per an article published on BlackRock, “Exceptional profitability has led to exceptional cash-flow generation, much of which is returned to shareholders in the form of buybacks” (read: Microsoft's Azure Returns to Growth: 5 ETFs to Buy).
Therefore, considering the long-term growth prospects of tech stocks one should avail the opportunity of the recent sell-off and invest in tech stocks. We believe fundamentally-strong companies have greater possibilities of bouncing back once the impact of Coronavirus cools down.
Here, we have zeroed in on four tech stocks that are most likely to rebound and enrich your portfolio returns in 2020.
These stocks also have a favorable combination of a VGM Score of A or B, and a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per the Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.
Our Picks
Cirrus Logic (CRUS) has been benefiting from robust demand for smartphone components, as well as smart codecs and amplifiers in wired and wired and wireless headphones. Rising demand for boosted amplifiers in tablets and laptops is also a tailwind for this Zacks Rank #1 stock.
Cirrus Logic has a VGM Score of B. Moreover, the Zacks Consensus Estimate for fiscal 2021 earnings moved up 14.4% to $3.89 per share in the past 30 days.
Cirrus Logic, Inc. Price, Consensus and EPS Surprise
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NVIDIA (NVDA) is gaining from strong growth in GeForce desktop and notebook GPUs, which is aiding its gaming revenues. Moreover, an increase in Hyperscale demand is a tailwind for this Zacks #2 Ranked stock’s data-center business. Additionally, ray-traced gaming, rendering, high-performance computing, AI and self-driving cars are key growth prospects.
NVIDIA has a VGM Score of B. Additionally, the Zacks Consensus Estimate for fiscal 2021 earnings moved 9.9% north to $7.80 per share in the past month.
NVIDIA Corporation Price, Consensus and EPS Surprise
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FireEye (FEYE) is expected to keep benefiting from solid demand for its products, given the healthy environment of the global security market. The company’s strategy of shifting its business model to a subscription-based one is stoking growth.
The company currently carries a Zacks Rank of 2 and a VGM Score of A. Further, the Zacks Consensus Estimate for the ongoing-year earnings moved up 50% to 21 cents per share over the past 30 days.
FireEye, Inc. Price, Consensus and EPS Surprise
[Alert! The Company With Over 200 Patents / 500 More Pending in Tech Called “the new oil.”]
Seagate Technology (STX) has been benefiting from solid demand for mass storage solutions across edge and enterprise markets. Also, improving trend in PC shipments is a positive for this Zacks Rank #2 company, which carries a VGM Score of B. We believe Seagate’s NAND-supply deal with Toshiba will help it develop advanced HDD, SSD and hybrid solutions. Higher HDD demand from mass capacity storage vertical, driven by data growth at the edge and in the cloud is a positive.
Moreover, the Zacks Consensus Estimate for Seagate’s fiscal 2020 earnings has been revised 3.3% upward to $5.06 per share in 30 days’ time.
Seagate Technology PLC Price, Consensus and EPS Surprise
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