What are we looking for?
Major U.S. technology services stocks poised to climb in 2017.
The U.S. stock rally that began in early November, 2016, has now added more than $2-trillion (U.S.) to the value of U.S.-listed equities.
Some sectors such as financial services and industrials have had an outsized contribution to the rally, whereas some sectors such as technology have lagged.
If we assume the rally will continue in 2017 because of optimism about the U.S. economy, we can expect some reversion to the mean with traditional leaders such as technology services beginning to outperform.
We will be using Recognia Strategy Builder to search for large-cap U.S. technology services stocks with positive four-week price performance, reasonable valuations and low debt.
We begin by setting a minimum market cap threshold of $10-billion.
Next, we will look at valuation based on the forward price-to-earnings ratio. We will limit our screen to companies with a forward P/E of less than 30.
Rising U.S. interest rates also are of concern for companies with significant debt levels. We will therefore limit our screen to companies with debt-to-equity ratios of less than one.
Finally, to look for companies that are already showing upward price momentum, we will screen for stocks that have positive price performance in the past four weeks and have seen a recent noteworthy change in their momentum oscillator.
In technical analysis, the momentum oscillator crossing zero in the upward direction is considered a bullish sign indicating a strengthening in the current price trend.
The table shows the dates these events took place.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Topping our list is CA Inc., a provider of enterprise software focusing on mainframes and distributed computing.
CA has a very low P/E ratio of just 13 and a low debt-to-equity ratio of 0.38. The stock has been in a strong bullish uptrend since January, 2016, and has logged a 26-per-cent gain in the past year.
Alphabet Inc. (Google's parent company) is a consistent technology star with a long-term track record of price appreciation.
In approximately one week, Alphabet will report fourth-quarter earnings. Last quarter, the company handily beat consensus estimates for both revenue and earnings because of a strong performance by their core search business.
PayPal Holdings Inc. is another well-known technology stock with a $50-billion market cap and a 3.1-per-cent price surge in the past four weeks.
In an industry where sky-high P/E ratios are common, PayPal looks reasonably valued with a forward P/E ratio of 27.6. The company is scheduled to release its fourth-quarter earnings on Jan. 26.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.
U.S. tech companies showing upward price momentum
|Rank||Company||Ticker||Mkt Cap. ($Bil U.S.)||Fwd P/E Ratio||Debt to Equity Ratio||Price Perf. (4-Wk)||Momentum Oscillator Date||Dividend Yield|
|3||PayPal Holdings Inc.||PYPL-Q||$49.8||27.6||0.00||3.1%||13-Jan-17||0.0%|
|4||CGI Group Inc.||GIB-N||$15.1||18.1||0.30||1.9%||18-Jan-17||0.0%|
|5||Citrix Systems Inc.||CTXS-Q||$14.2||18.5||0.61||1.6%||11-Jan-17||0.0%|
|6||Akamai Technologies Inc.||AKAM-Q||$12.1||27.1||0.20||2.5%||13-Jan-17||0.0%|