Despite the coronavirus pandemic wreaking havoc on the global economy, the S&P 500 finished the second quarter with a gain of 20% — marking it Wall Street’s best quarter since 1998.
Although the market is likely to be choppy through the second half of 2020 owing to the rising apprehensions regarding a second wave of coronavirus, there will be opportunities to earn in the equity market if well-researched investment strategies are adopted.
Tech Stocks Weathering the Crisis
While the coronavirus outbreak has had a sector-wide impact economically, the U.S. tech sector has been more resilient compared with others so far this year.
The coronavirus outbreak has opened newer avenues of growth for tech companies, particularly cloud computing, Internet services and cybersecurity providers, which are expected to benefit from the ongoing work-from-home, web-based learning and remote health diagnosis trends.
Moreover, growing demand for e-commerce, contactless delivery through drones and digital payment have necessitated the accelerated 5G network development.
Additionally, rapid adoption of digital transformation, the ongoing integration of AI and machine learning and growing clout of blockchain, IoT, autonomous vehicles, AR/VR and wearables favor the sector’s prospects.
The tech sector is thriving and holds potential to defy the recessionary woes and minimize the anticipated contraction of the world economy owing to coronavirus-induced crisis.
Markedly, the Technology Select Sector SPDR (XLK) has rallied 14.2% so far this year. The ETF has outperformed all three major U.S. indices. The Nasdaq Composite has gained 13.2% year to date, while the Dow Jones and the S&P 500 have lost 4% and 3.6%, respectively.
Adopt Mid-Cap Strategy to Cushion Your Portfolio
Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine attractive attributes of both small and large-cap stocks.
If economic impacts of coronavirus become more pronounced, mid-cap stocks will be less susceptible to losses than their large-cap counterparts.
However, if the Wall Street bull run continues owing to improving consumer confidence, these stocks will gain higher than small caps due to established management teams, broad distribution network, brand recognition and ready access to capital markets. Additionally, stimulus to fuel the economy hold promise. During the recovery phase, many of these mid-cap stocks may join large-cap league.
Our Top Picks
We have narrowed down our search to four mid-cap tech stocks (market capital > 5 billion but < 10 billion) that have solid fundamentals and are well-poised for growth in July.
Apart from robust earnings estimate revisions, they have a favorable combination of a Growth 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 this combination offer solid investment opportunities.
Anaplan PLAN is well poised to gain from robust uptick in demand for its cloud-based Connected Planning platform, which enables clients to improve decision-making across finance to supply chains on a real-time basis.
The coronavirus pandemic-induced macroeconomic weakness has increased the need for companies to optimize their spend patterns to survive during these uncertain times. Moreover, rapid digital transformation taking place across all industries is further driving the need for efficient planning and data-driven decision-making solutions. These factors favor prospects of Anaplan that currently sports a Zacks Rank #1.
San Francisco, CA-based Anaplan has a Growth Score of B and a market cap of $6.44 billion. The Zacks Consensus Estimate for its fiscal 2021 bottom line is pegged at a loss of 44 cents per share, having narrowed from a loss of 45 in the past 60 days.
As education institutes shift focus to online learning, Chegg CHGG is expected to benefit from adoption of Chegg Services that allow students to find human help on its learning platform through a network of live tutors.
Strength in digital products and services such as Chegg Study, Chegg Writing and Chegg Tutors, hold promise for this Zacks Rank #2 company.
Domiciled in Santa Clara, CA, Chegg has a Growth Score of A and a market cap of $8.42 billion. The Zacks Consensus Estimate for current-year earnings has improved 15.2% over the past 60 days to $1.21 per share.
You may also invest in Arrow Electronics ARW, which has been benefiting from solid uptrend in design activity. Strong momentum in infrastructure software, next-generation hardware and hybrid cloud architectures is encouraging as well.
Arrow’s core strength of providing best-in-class services and easy-to-acquire technologies will bolster growth in the future. Also, uptick in order backlogs is a tailwind for this Zacks Rank #2 company based in Centennial, CO.
Arrow has a Growth Score of A and a market cap of $5.20 billion. The Zacks Consensus Estimate for current-year earnings has improved 2.4% to $5.97 per share over the past 60 days.
We also suggest investors to consider Dropbox DBX, which has been gaining from the evolving workspace demand for seamless enterprise communication tools.
The company offers a platform that enables users to store and share files, photos, videos, songs and spreadsheets. Solid demand for cloud storage, triggered by coronavirus crisis led work-from-home wave has been acting as a tailwind for this Zacks Rank #2 company.
Further, integration with leading applications like Zoom Video, Slack and Atlassian are likely to expand the Dropbox paying-user base over the long run.
Headquartered in San Francisco, CA, Dropbox has a Growth Score of B and a market cap of $9 billion. The Zacks Consensus Estimate for its 2020 earnings is pegged at 74 cents per share, having been revised upward by 5.7% in the past 60 days.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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Click to get this free report Arrow Electronics, Inc. (ARW) : Free Stock Analysis Report Chegg, Inc. (CHGG) : Free Stock Analysis Report Dropbox, Inc. (DBX) : Free Stock Analysis Report Anaplan, Inc. (PLAN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research