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What are we looking for?

U.S. technology stocks that are indicating strong revenue and earnings growth along with positive short-term price performance.

The U.S. technology sector has been one of the worst performing sectors year-to-date with the Technology Select Sector SPDR Fund (XLK), a proxy for the sector, down more than 19 per cent so far in 2022, as of midday Thursday. Volatility remains high.

Looking at seasonality data, over the past 20 years XLK has closed out May higher than it has opened the month 70 per cent of the time, for an average gain in those positive Mays of 1.9 per cent. Could there be a major rebound in this beaten-down sector, or will inflation fears change the 20-year positive seasonality track record?

The screen

Using Trading Central’s Strategy Builder, we begin by setting a minimum market capitalization threshold of US$4-billion. We wish to focus on mid- to large-cap names in the market in order to avoid smaller, more volatile stocks in the sector.

Next, we will filter for stocks that have had a positive return over the past four weeks and 52 weeks in order to help us identify stocks that are showing positive price momentum.

Finally, we screened for tech stocks that are indicating earnings-per-share growth above 20 per cent, and revenue growth of at least 15 per cent, in the most recent quarter compared with the same quarter a year ago.

For informational purposes, we have also included year-to-date price performance, dividend yield and price-to-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.

What we found

U.S. technology stocks that indicate strong revenue and earnings growth

RankCompanySymbolMkt. Cap. (US$ Bil.)4W Price Perf. (%)52W Price Perf. (%)EPS Grth. (%)Rev. Grth. (%)YTD Price Perf. (%)Div. Yld. (%)P/ERecent Price (US$)
1Avnet Inc.AVT-Q4.622.88.772.032.013.82.26.946.79
2Monolithic Power Sys.MPWR-Q22.311.141.867.844.4-3.20.639.8479.19
3Tower Semicon.TSEM-Q5.31.675.267.919.422.1n/a20.249.12
4Aspen TechnologyAZPN-Q11.31.532.323.115.411.6n/a31.6170.02
5ON SemiconductorON-Q25.69.756.9490.031.3-16.0n/a12.158.92
6ASGN Inc.ASGN-N6.15.514.554.817.0-4.4n/a17.7118.65
7Broadcom Inc.AVGO-Q246.50.336.083.315.8-9.02.716.3603.66
8Qualcomm Inc.QCOM-Q166.97.010.768.040.7-20.02.011.5149.05
9Dell TechnologiesDELL-N37.13.624.966.419.6-14.32.77.248.81
10Entegris Inc.ENTG-Q16.46.78.948.426.7-12.90.327.0120.54
11MaxLinear Inc.MXL-Q4.211.852.5740.026.1-30.4n/a12.953.61
12Amphenol Corp.APH-N44.21.210.528.324.2-14.51.125.673.94
13KLA Corp.KLAC-Q52.11.512.032.026.9-19.71.214.9349.38
14Silicon LaboratoriesSLAB-Q5.33.38.1100.048.1-29.7n/a36.6143.69
15SPS Commerce Inc.SPSC-Q4.50.328.121.416.8-9.7n/a56.4121.05

Source: Trading Central

Topping our list is Avnet Inc., a global technology company that sells electronic components in a variety of industries. The company’s stock price just reached a 52-week high this week. The stock has the best four-week price performance on our list at 22.8 per cent. Its EPS and revenue growth are 72 per cent and 32 per cent, respectively, compared with the same quarter a year ago.

MaxLinear Inc., an integrated circuit design company for communication systems, has the highest EPS growth on our list, at an impressive 740 per cent compared with the same quarter last year. The stock has been hit hard in 2022, with a decline of more than 30 per cent year-to-date, which lowered the P/E to 12.9 – one of the lowest on our list. The company just announced the acquisition of Taiwan chipmaker Silicon Motion Technology Corp. (SIMO) for about US$3.8-billion in a cash-and-stock deal.

Broadcom Inc., a semi-conductor manufacturing giant, has the largest market cap on our list at US$246.5-billion. The company has had positive EPS and revenue growth of 83.3 per cent and 15.8 per cent, respectively.

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 24-per-cent annualized total return compared with 12 per cent for the S&P 500 index and 15 per cent for the Nasdaq Composite Index 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.

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

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