What are we looking for?
This week we hunt for opportunities in the U.S. technology sector, which has underperformed over the past three months ahead of the April earnings season. The end of March gives traders enough time to “buy the rumour and sell the news” when it comes to coming quarterly earnings announcements.
The Technology Select Sector SPDR Fund (XLK) is down 10.6 per cent over the past three months after flirting with bear market territory. Digging deeper into the sector, computer hardware, software and electronic equipment companies have started to bounce back over the past five trading days. Are we about to see a major rebound in the technology sector during this upcoming earnings period?
The screen
We will be using Trading Central’s Strategy Builder stock screener to search for U.S. companies in the technology sector that are showing revenue growth and upside price momentum ahead of the coming earnings season.
We begin by setting a minimum market capitalization threshold of US$5-billion. We wish to focus on mid- to large-capitalization names in the market in order to avoid smaller, more volatile stocks in the sector.
Next, we will filter for stocks that have had at a positive return over the past 52 weeks and at least a 5-per-cent gain over the past four weeks to identify stocks that are showing upward price momentum.
Finally, we screened for tech stocks that are indicating earnings per share growth above 5 per cent and revenue growth of at least 10 per cent last quarter versus the same quarter a year ago.
For informational purposes we have also included the price-to-earnings ratio, dividend yield 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. Strategy Builder is available through leading retail brokers in Canada and around the globe.
What we found
Every stock on our list has a negative return year-to-date, which may be of some interest to investors using a bottom-feeding stock selection methodology.
Topping our list is Nvidia Corp., a leading designer of graphics processors. The company has been trending in tech news recently after announcing three new powerful GPU technology chips aimed at artificial intelligence. The stock has the best four-week and one-year performance on our list at 14.5 per cent and 102.8 per cent, respectively. Growth in revenue and EPS are also the highest on our list. For price performance year-to-date, the stock is down 14.9 per cent – the worst on our list – which might be seen as a significant discount when compared with its peers in the sector.
Apple Inc. has the highest market cap, at US$2.8-trillion. It just announced a US$4.7-billion investment as part of its Green Bond investment fund to support the development of new low-carbon manufacturing and recycling technologies. The company has also announced a partnership with Elysis, a carbon-free smelting company based in Montreal, to help produce carbon-free aluminum used in the new iPhone SE. Apple’s stock price is only down 6.5 per cent year-to-date after rebounding 13 per cent off a March 15 low.
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.
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.
Gary Christie