What are we looking for?
North American technology stocks indicating strong earnings, price performance and TC Quantamental factors.
The U.S. first-quarter earnings season is nearing an end now that 396 companies inside the S&P 500 index have reported their results. In the technology sector, 55 per cent of companies reporting posted positive earnings and sales surprises compared with 78 per cent in the same period a year ago. Despite a decline in earnings performance, the U.S. tech sector has been one of the best-performing sectors year-to date, with the U.S technology sector fund ETF (XLK) up about 20 per cent.
This week we decided to dig into the sector in order to find outperformers from a price- and earnings-momentum perspective.
We used Trading Central’s Strategy Builder to search for North American stocks in the technology sector that are indicating strong earnings growth, upside price momentum and above average TC Quantamental ratings.
We began by setting a minimum market capitalization threshold of US$5-billion. We wish to focus on mid- to large-cap names in the market in order to avoid the smaller, more volatile stocks in the sector.
Next, we filtered for stocks that have moved higher by at least 5 per cent over the past four weeks and have a positive return over one year in order to help us identify stocks that are showing positive price momentum.
We screened for stocks indicating upside earnings momentum with EPS growth above 10 per cent last quarter compared with the same quarter a year ago.
Finally, we filtered for the top-rated stocks using Trading Central’s Quantamental rating method, which rates stocks on a scale of one to 10, with 10 being the most bullish and one being the most bearish. The TC Quantamental rating uses a combination of valuation, growth, quality, price momentum and income as key metrics when rating a company. In our screen, we set a minimum rating of six out of 10 in order to screen for the top-rated companies.
For informational purposes, we have also included the recent stock price, dividend yield and price/earnings ratio.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Stocks are ranked based on the average of all screening criteria selected.
Topping our list is Super Micro Computer Inc. SMCI-Q, a global tech company in the artificial intelligence (AI), data analytics, 5G, and various computing infrastructure services business. The company just released its 2022 third-quarter results this past Tuesday, showing sales were down 5.3 per cent, however the company raised its fourth-quarter sales and earnings-per-share (EPS) guidance. The stock price jumped more than 20 per cent to a new record high. EPS growth rose 302 per cent last quarter compared with the same period a year ago. The stock has the best four-week, year-to-date and 10-year price performance on our list at 24 per cent, 63.2 per cent and 136.2 per cent, respectively. The company also has the highest TC Quantamental Rating on our list at 8.01 out of 10, which is very high and rare to see.
Microsoft Corp. MSFT-Q, the software giant, has the largest market cap on our list at US$2.26-trillion. The stock has been performing strongly, with a 26.9-per-cent return year-to-date. Short-term price momentum has also been quite impressive, returning just over 7 per cent in the past four weeks.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described has a 14-per-cent annualized total return compared with 9 per cent for the S&P 500 index and 11 per cent for the Nasdaq Composite Index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.