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What are we looking for?

U.S. technology firms showing growing quarterly earnings and share-price appreciation.

With one day to go in August, one of the biggest U.S. sector winners for the month has been information technology, up more than 7 per cent in the month of August. After lagging the market for June and July, the tech sector has rebounded in the past month, led by investor enthusiasm about the overall health of the U.S. economy and the longevity of the current bull market. Can we find U.S. technology stocks that look poised for further growth?

The screen

We will be using Trading Central Strategy Builder to search for U.S. tech stocks demonstrating reasonable valuations, growing earnings and upward price momentum over the past month.

We will start by screening for U.S. electronic technology stocks with a market capitalization of at least US$10-billion. This will limit our search to the largest and most stable companies in the market with correspondingly higher quality revenue and earning streams.

Next, we will search for stocks that have growing earnings and reasonable valuation levels. We will look for stocks with earnings a share up at least 8 per share in the past quarter versus the same period a year ago. We will also filter for trailing price-to-earnings ratios of 40 or lower.

Last, to find stocks that have demonstrated good price momentum in the month of August, we will screen for share-price gains of 4 per cent or more over the past four weeks.

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What did we find?

Topping our list is computer maker HP Inc. HP has had a great run in 2018, up 19 per cent year to date and up 9 per cent in August alone. This strong performance has been driven by successive quarters of strong corporate execution and corresponding growth in revenue and earnings. In spite of this growth, HP still has a trailing P/E ratio of less than 10.

Another strong performer on our list is Seagate Technology PLC. Seagate is up 5.5 per cent in the month of August despite a one-day drop of 8.9 per cent mid-month resulting from a downgrade by Goldman Sachs. Investors seem to have ignored this news and focused on the strong year-over-year EPS growth of 313 per cent and low P/E ratio of 13.4. Seagate also has a very attractive dividend yield of 4.5 per cent.

One of the overlooked stars of the tech sector this year has been networking hardware provider F5 Networks Inc. F5 stock is up an impressive 44 per cent year-to-date and up 11.6 per cent in the past four weeks. This share-price outperformance reflects strong growth in the computer networking industry as a whole as well as successive quarters of F5′s revenue and earnings growth exceeding analyst expectations.

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.

Select U.S. electronic technology companies

Rank Company Ticker Recent Price (US$) Market Cap. (US$Bil) P/E (TTM) EPS Growth (Last Qtr vs. Prior Yr) Price Performance (4-Wk) Div. Yield
1 HP Inc. HPQ-N $25.14 $39.4 9.7 93.9% 9.0% 2.3%
2 Seagate Technology PLC STX-Q $53.47 $16.2 13.4 313.2% 5.5% 4.5%
3 Analog Devices Inc. ADI-Q $99.30 $37.3 26.5 511.1% 4.3% 1.9%
4 F5 Networks Inc. FFIV-Q $189.39 $11.5 25.9 30.9% 11.6% 0.0%
5 Texas Instruments Inc. TXN-Q $113.90 $111.8 26.2 35.9% 4.0% 2.2%
6 Garmin Ltd. GRMN-Q $68.30 $12.5 21.4 9.9% 5.6% 3.3%
7 Xilinx Inc. XLNX-Q $77.83 $19.5 37.4 17.5% 10.0% 2.0%

Source: Trading Central

Peter Ashton is vice-president of customer success at Trading Central.

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