What are we looking for?
The S&P 500 has broken above key resistance levels to reach record highs this week, which has signalled the end of a long-term broadening wedge consolidation technical pattern that started more than a year ago. What this really means is the S&P 500 has resumed its long-term up trend.
Looking at sector performance, technology has come back on top as a leader with the SPDR Technology Sector exchange-traded fund (ETF) (ticker XLK-A) returning 13.8 per cent over the past month. The Utilities Sector SPDR ETF (XLU-A) is positive on the month, but remains the laggard with a 4-per-cent return. We like to see technology outperform defensive sectors such as utilities in a bull market.
Diving into more data, the SPDR Technology Fund has closed higher at the end of August than it opened 100 per cent of the time over the past five years, posting an average return of 2.1 per cent.
We will be using Trading Central Strategy Builder to search for large-cap U.S. technology stocks that are showing positive revenue growth and strong price performance in relation to the broad S&P 500 index. Strategy Builder is available through leading retail brokers in Canada and around the globe.
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 will filter for stocks that have had a minimum percentage return of 20 per cent over the past 52 weeks, and 5 per cent over the past four weeks to find the real top performers.
Lastly, we will look for tech stocks that are indicating revenue growth of at least 10 per cent in the most recently reported quarter when compared with the same quarter a year ago.
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, forex, options and commodities.
What we found
Topping our list is PagSeguro Digital Ltd. (PAGS-N), a U.S.-based company, which acts as a provider of financial technology solutions focused primarily on micro-merchants as well as small and medium-sized companies in Brazil. The company provides a range of solutions and tools such as cash-in and cash-out options, and provides access to working capital and helps companies to manage their cash flow. It provides clients with an end-to-end digital ecosystem to address day-to-day financial needs, including receiving and spending funds, as well as managing and expanding businesses. The company has seen an impressive return of 50 per cent over the past year with strong quarterly revenue growth of 49 per cent in its most recent quarter compared with a year ago.
Software developer Microsoft Corp. (MSFT-Q), which needs no introduction, has the largest market cap on our list. The stock has returned an impressive 38 per cent over the past year. The company’s share price has been outperforming the S&P 500 since March as it continues to trend higher.
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 16.9-per-cent annualized return compared with 8.2 per cent for the S&P 500.
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.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.