The best tech stocks to buy or watch aren’t hard to find, as long as you’re fishing in the right pond. Whether it’s a widely held name like Facebook stock or a lesser-known name like Roblox stock, the best tech stocks share many common traits.
The best tech stocks boast strong fundamentals along with leading price performance in their industry groups. Many also show favorable fund ownership trends.
Fund sponsorship is still light when it comes to new issue Roblox, but accelerating revenue growth, and big annual earnings estimates this year and next give this stock look of a potential stock market leader.
Meanwhile, a strong earnings report from Facebook on April 29 fueled a gap up over an alternate entry of 315.98.
Fishing in the right pond means targeting top stocks showing resilience and holding near highs. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.
Stock Market Health
Making money in growth stocks has become more challenging after a 40%+ gain for the Nasdaq composite in 2020.
The 2020 stock market rally started with a follow-through day for the S&P 500 on April 2. It soared 2.3% in higher volume, confirming a new uptrend on the eighth day of its rally attempt. The Nasdaq composite confirmed a new uptrend on April 6 when it soared 7.3% in higher volume.
The stock market went into a correction on Sept. 23 after the S&P 500 flashed its eighth distribution day, falling 2.3% in higher volume. But it didn’t take the stock market long to recover. The Dow Jones Industrial Average flashed a follow-through day on Sept. 30, rising 1.2% in higher volume.
After a sharp pullback for the stock market in October, the S&P 500 followed through again on Nov. 4, rising 2.2% in higher volume.
The stock market uptrend came under pressure, hurt by six distribution days for the S&P 500 between Feb. 18 and March 4. But the stock market went back to a confirmed uptrend on March 16.
You can monitor the distribution day count every day in The Big Picture column. Read it for exclusive stock market analysis.
Four Top Tech Stocks
The technology sector is loaded with stocks with outstanding fundamentals. Many sell at a hefty premium, but a high valuation is warranted due to strong growth prospects.
Finding The Best Tech Stocks To Buy Or Watch
Screening for the best tech stocks to buy or watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.
The best tech stocks to buy or watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.
Roblox has been volatile since its March debut at 45. The stock opened at 64.50 and closed at 69.50 on its first day of trading.
Roblox cleared an IPO base with a 79.20 buy point on April 12. But it’s been a difficult environment for technical breakouts lately, and sellers came into Roblox stock.
It’s setting up again, though, and is getting into position for another breakout try.
Roblox operates an online gaming platform popular with the Generation Z crowd. The company boasted 32.6 million daily active users at the end of 2020, up 85% from 2019.
What differentiates Roblox from other online game platforms is that it lets users create their own games on the platform.
Roblox shows three straight quarters of accelerating sales growth, from 68% to 92% to 110%. Sales growth is expected to accelerate sharply again when the company reports Q1 results on May 10.
The Zacks consensus estimate is for Q1 sales to surge 250% to $565.6 million.
In 2020, Roblox reported total sales of $924 million, up sharply from $508 million in 2019. Strong sales growth has been seen in many past IPO winners before big price moves.
Roblox lost 46 cents a share in 2020, but it’s expected to earn 44 cents this year and 55 cents in 2022.
Composite Rating: 30
Latest-quarter EPS % change: (-0.11 cents vs -0.6%)
Latest-quarter sales % change: 110%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax profit margin: n/a
After a modest pullback, Facebook was near a 304.77 entry ahead of its Q1 report after a breakout from a long consolidation.
But the stock gapped up over a 315.98 alternate entry Thursday after the company reported a 93% jump in quarterly profit to $3.30 a share, with revenue up 48% to $26.2 billion. The results easily beat the Zacks consensus estimate of $2.36 and revenue of $23.7 billion.
Revenue growth was driven by a 30% year-over-year increase in the average price per ad and a 12% increase in the number of ads delivered.
An Accumulation/Distribution Rating of A- indicates strong demand for shares in recent weeks.
Facebook reported daily active users of 1.88 billion, up 8% from the year-ago period but slightly below the FactSet consensus estimate of 1.89 billion. Monthly active users rose 10% to 2.85 billion, vs. estimates of 2.86 billion.
Daily active users in the U.S. and Canada remained flat at 195 million for the second consecutive quarter.
Facebook now has 3.45 billion monthly users across its family of apps, which also includes Instagram, Messenger and WhatsApp.
Composite Rating: 94
Latest-quarter EPS % change: 93%
Latest-quarter sales % change: 48%
Three-year annualized EPS growth rate: 13%
Annual return on equity: 24.6%
Annual pretax margin: 38.6%
The Nasdaq 100 firm gapped down Wednesday despite reporting its second straight quarter of accelerating sales growth. MSFT stock is currently testing its 21-day exponential moving average after a breakout from a flat base with a 246.23 buy point.
Earnings growth accelerated for the third straight quarter, rising 39% to $1.95 a share. Revenue increased 19% to $41.7 billion. The Zacks consensus estimate was for adjusted profit of $1.76 a share on revenue of $40.94 billion.
Azure cloud revenue grew 50% year over year but was flat from the prior quarter.
The company’s Intelligent Cloud segment, which includes Azure, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Services delivered $15.12 billion in revenue, up 23% year over year and above the FactSet consensus estimate of $14.92 billion.
Microsoft Productivity and Business Processes unit, which houses Office, Dynamics and LinkedIn, contributed $13.55 billion in revenue, up 15% and above the consensus estimate of $13.49 billion.
The company’s Teams business communication platform now boasts 145 million daily active users, up from 115 million in October.
Microsoft’s More Personal Computing unit, which includes Windows, gaming, devices and search, posted revenue of $13.04 billion, up nearly 19% and above the $12.55 billion consensus.
The company recently announced plans to buy voice recognition and artificial intelligence firm Nuance Communications (NUAN) for $16 billion, excluding debt.
Composite Rating: 88
Latest-quarter EPS % change: 39%
Latest-quarter sales % change: 19%
Three-year annualized EPS growth rate: 24%
Annual return on equity: 40.1%
Annual pretax margin: 37.1%
Lam Research Stock
The chip-equipment leader is trading near its 21-day exponential moving average after a bullish breakout over a 603.70 buy point.
If LRCX stock breaks support at the 21-day line, the next support level to watch is its 50-day moving average, just below the 600 level.
The company on April 21 reported a 54% surge in revenue. Adjusted earnings jumped 88% to $7.49 a share.
“Lam’s growth trajectory continues with record revenue and earnings per share delivered in the March quarter,” said CEO Tim Archer. “Semiconductors are reaching new heights of strategic relevance, and Lam’s differentiated ability to meet our customers’ scaling challenges positions us well amid a strong wafer fabrication spending environment.”
Lam Research’s growth runway still looks good, with fiscal 2021 profit expected to jump 58%. Growth is expected to slow in fiscal 2022, up 21%.
Composite Rating: 99
Latest-quarter EPS % change: 88%
Latest-quarter sales % change: 54%
Three-year annualized EPS growth rate: 7%
Annual return on equity: 48.2%
Annual pretax margin: 26.2%
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
YOU MIGHT ALSO LIKE: