What are we looking for?
Quality names in a strongly rebounding tech sector.
Looking at U.S. sector performance, the Technology Select Sector SPDR Fund (XLK) is only down 6.3 per cent year-to-date, making it one of the best performing sectors in the market. Computer hardware and software stocks are seeing the best performance inside the tech sector.
With the Nasdaq-100 rallying an impressive 36 per cent since March lows, the index has now rebounded by more than half of its decline, based on market capitalization, since posting record highs in February. Those thinking the market will decline further have missed an impressive move over the past few weeks.
Are we witnessing the shortest bear market in history or is the market getting ready to test the lows? No one knows; we have been preparing for a move in either direction. If you are a bullish investor looking to take advantage of a 16-per-cent decline in the technology sector year-to-date, we believe top-quality tech companies are the safest bet in the short term.
The screen
We will be using Trading Central Strategy Builder to search for U.S. large-cap technology stocks that have shown strength in a volatile, broad market decline.
We begin by setting a minimum market capitalization threshold of US$5-billion. We wish to focus on large-cap names in the market owing to the greater stability and safety they offer.
Next, we will filter for stocks that have declined less than 20 per cent over the past 52 weeks to filter for top performers in a bearish market environment.
We also want companies that show cash-flow growth in the last quarter compared with the same quarter a year ago, and that have operating margins greater than 10 per cent.
Finally, we are screening for stocks with a price-to-earnings ratio below the average of the Nasdaq-100 index, which is 25.3, to find the best value possible.
We have also included year-to-date price performance and dividend yield for your reference.
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. Strategy Builder is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is the semiconductor giant Intel Corp. with the largest market cap on our list at US$246-billion. Intel shares are up 5.1 per cent over the past 52 weeks and have rebounded 31 per cent off their March lows (not shown). Keep an eye out for Intel’s earnings report due April 23.
Applied Materials Inc. is one of the world’s largest suppliers of semiconductor manufacturing equipment. The company has the second-best 52-week performance on our list at 19.7 per cent after rebounding an impressive 40 per cent off of March lows. If price action can break above the stock’s 200-day moving average at about US$53.50, we may see further price momentum to the upside.
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