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What are we looking for?

The Technology Select Sector SPDR Fund (XLK) is up 7.8 per cent year to date, which is near the bottom of the S&P 500 sector performance rankings. Digging deeper, we find semiconductors, telecommunications equipment and electronic equipment are supporting the sector the most.

Today we use one of our top-performing U.S. technology strategies to help us identify opportunities in the lagging tech sector ahead of the coming reporting quarter.

The screen

We will be using Trading Central’s Strategy Builder to search for companies in the sector that are showing positive revenue growth and upside price momentum ahead of the heavily anticipated earnings season.

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We begin by setting a minimum market capitalization threshold of US$4-billion. We wish to focus on large-cap names in the market because of the greater stability and safety that they offer.

Next, we filter for stocks that have had at least a 20-per-cent return over the past 52 weeks and 5 per cent over the past four weeks to identify stocks that are showing bullish price momentum.

Finally, we want tech stocks that are indicating positive revenue growth of at least 11 per cent in the most recent quarter compared with the year-ago period, and a historical earnings-per-share growth rate over five years of at least 7 per cent, in order to measure how a company has increased its earnings over the longer term.

For informational purposes we have also included expected earnings report date, price-to-earnings ratio, dividend yield (where applicable) and recent stock price.

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.

What we found

Fifteen technology companies made our list with nine of them being in the semiconductor space.

Topping our list is Applied Materials Inc., a leader in materials engineering services for the semiconductor industry. The company has the best one-year and four-week performance on our list at 170.4 per cent and 23.5 per cent, respectively. Looking ahead to the company’s May 20 earnings release, Applied Materials has a five-year historical EPS growth rate of 28.5 per cent and 24-per-cent revenue growth in the prior quarter compared with the same period last year.

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Adobe Inc., a developer of software products, has the highest five-year EPS growth rate on our list, at 54.3 per cent. Look for the company to report second-quarter earnings on June 17.

Qualcomm Inc., a maker of digital wireless communications equipment, has the highest revenue growth in the most recent quarter of 62.2 per cent compared with the same quarter last year. We can expect the company to report second-quarter earnings on April 28 after the market closes.

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 had a 22.8-per-cent annualized return, slightly better than 22.7 per cent for the Nasdaq Composite Index. The S&P 500 advanced 14.2 per cent on the same basis.

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.

Technology names to watch as earnings season approaches 

RankCompanyTickerMkt. Cap. (US$ Bil.) 1Y Price Perf. (%)4W Price Perf. (%)Rev. Growth. (%)* 5Y EPS Growth Rate (%)Earns. Report DateP/EDiv. Yld. (%)YTD Price Perf. (%)Recent Price (US$)
1Applied MaterialsAMAT-Q128.0170.423.524.028.520-May31.60.761.2138.54
2Amkor TechnologyAMKR-Q6.2173.017.316.344.826-Apr19.20.667.425.14
3Nvida Corp.NVDA-Q351.0111.913.461.144.921-May71.10.18.3573.01
4Teradyne Inc.TER-Q21.9109.921.015.934.621-Apr31.90.39.9132.70
5Texas InstrumentsTXN-Q178.075.314.021.716.227-Apr33.92.117.6193.93
6Marvell TechnologyMRVL-Q34.0103.617.611.222.728-Mayn/a0.55.950.24
7Microsoft Corp.MSFT-Q1,880.051.37.516.731.229-Apr37.70.812.4253.36
8Cadence Design Sys.CDNS-Q39.898.412.426.721.120-Apr65.8n/a4.5144.51
9Maxim IntegratedMXIM-Q25.678.89.714.027.727-Apr37.0n/a7.595.97
10Adobe Inc.ADBE-Q236.055.612.926.354.317-Jun43.6n/a-1.3501.51
11Analog Devices Inc.ADI-Q58.857.28.419.68.320-May30.41.77.9160.17
12Amphenol Corp.APH-N40.369.08.412.810.228-Apr35.50.92.967.50
13Autodesk Inc.ADSK-Q62.879.78.515.622.427-May123.2n/a-6.3293.80
14Qualcomm Inc.QCOM-Q158.
15Apple Inc.AAPL-Q2,

Source: Trading Central * Revenue growth: most recent quarter vs. same period a year ago

Gary Christie is head of North American research at Trading Central in Ottawa.

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