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What are we looking for?

U.S.-listed technology companies demonstrating consistent earnings growth.

The second-quarter U.S. earnings season is almost over, with 90 per cent of S&P 500 companies having reported their financial results and largely exceeding analysts’ expectations. According to FactSet, 83 per cent of companies have surpassed analysts’ earnings per share (EPS) estimates. Among technology stocks, 93 per cent have reported earnings above estimates as the sector continues to push U.S. indexes into record-high territory since hitting lows in March during the novel coronavirus pandemic. If the remaining index companies due to report keep up with this trend, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. Looking at sector performance, the Technology Select Sector SPDR Fund (XLK) remains the top-performing ETF with a gain of more than 25 per cent year to date.

The screen

Keeping with the earnings trend, we will be using Trading Central Strategy Builder to search for U.S. technology stocks that are showing consistent revenue and earnings growth.

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We begin by setting a minimum market capitalization threshold of US$5-billion. We focus on large-cap names because of the stability and safety they offer.

Next, we will filter for stocks that have a five-year historical EPS growth rate of at least 10 per cent.

Last, we will look for tech stocks that are indicating revenue growth of at least 5 per cent in the most recent quarter compared with the same period a year earlier.

For informational purposes, we have also included the recent share price, price-earnings ratio and dividend yield. Strategy Builder is available through leading retail brokers in Canada and worldwide.

What we found

Our screener ranks the list based on all performance and revenue criteria. The top 10 companies represent the best holdings that meet the strategy criteria.

First on our list is Logitech International SA, a Swiss-based provider of personal computer and mobile accessories that most of us have probably used. The company has the highest five-year EPS growth rate in our group at 113 per cent. The stock price is up an astonishing 135 per cent since pandemic lows in March as the bullish trend in tech continues, with consumers purchasing devices that help make working from home a bit easier.

Teradyne Inc. makes automatic test systems for use in the wireless, automotive, aerospace and defence industries, and it’s a company we see frequently in our top 10 technology list. It has the highest revenue growth at 49 per cent in the past quarter compared with the same period a year ago.

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Nvidia Corp., a leading designer of graphics processors, made our list by having the second-best quarterly revenue growth – 39 per cent compared with the same quarter in 2019. The company boasts the best price performance on our list, with a 205-per-cent return over the past year as its stock price continues climb to new record highs. All eyes are on Nvidia as it is expected to report second quarter EPS of US$1.97, compared with US$1.24 a year ago, on Aug. 19 after markets close.

Trading Central Strategy Builder provides a backtesting 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 13.4-per-cent annualized return compared with 9.9 per cent for S&P 500 broad market 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.

Select U.S. tech stocks

RankCompanySymbolRecent Price (US$)P/EMarket Cap. (US$Bil) Revenue Growth (%Last Qtr.vs.YOY)1 Yr Performance(%)EPS Growth (%5-Yr Historical)Div. Yield (%)YTD Performance (%)
1Logitech International SALOGI-Q73.7425.612.222.993.1113.5156.4
2Teradyne IncTER-Q89.6524.914.348.774.847.70.531.5
3Applied Materials IncAMAT-Q66.520.559.111.842.426.91.48.9
4Microsoft CorpMSFT-Q209.1935.326712.8204.931.20.232.7
5Citrix Systems IncCTXS-Q136.4923.115406.756.127.9123.1
6KLA CorpKLAC-Q20826.016.81649.516.6116.7
7NVIDIA CorpNVDA-Q457.6181.131.238.758.632.21.894.5
8Entegris IncENTG-Q71.0641.49.3318.472.498.90.541.9
9ASML Holding NVASML-Q374.8144.415329.579.617.70.826.7
10Apple IncAAPL-Q452.0433.21,87010.912313.00.753.9

Source: Trading Central 

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, foreign exchange, options and commodities.

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

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