Stocks surged Wednesday, after slipping to start the week, with the tech-heavy Nasdaq up above 11,000 once again. The mid-week gains were once again driven by the tech titans, including Apple AAPL, Amazon AMZN, and Microsoft MSFT.
Tesla TSLA also soared after it announced a 5-for-1 stock split to help make its shares more attractive to a wider range of investors—Apple announced a split at the end of July. Advanced Micro Devices AMD, Nvidia NVDA, and other recent tech standouts jumped as well.
The positivity marks the extension of the technology sector’s massive run off the market’s March bottom, as the tech space proves increasingly resilient to the coronavirus economic downturn. Wall Street has also been pleased with the better-than-expected second quarter earnings results, along with the improving third quarter outlook.
In recent weeks, there have been more calls about a transition out of tech into undervalued cyclicals, such as travel and leisure, financials, and energy. The move into some of those areas could pay off for investors and it’s a bet on the continued reopening of the economy, as people, businesses, and Wall Street learn to live with the coronavirus.
There are some legitimate valuation concerns on the tech front. But with the don’t fight the Fed mantra etched into the market, cyclicals could start to climb without causing a major tech pullback.
Yet now might be time to be a bit more selective when it comes to buying tech stocks. So today we look at three tech stocks that pay a dividend and are poised to grow during the pandemic and beyond…
Qualcomm topped our Q3 fiscal 2020 earnings estimates near the end of July. More importantly, the smartphone chip making powerhouse announced that it finally resolved its licensing battle with Huawei, despite growing tension between the U.S. and China. QCOM said it would receive a $1.8 billion payment from the Chinese telecom firm for outstanding fees. QCOM also landed a new long-term agreement to license its patented technologies for Huawei use.
The move comes after Qualcomm and Apple resolved their legal battle in 2019. Investors should also note that an appeals court just recently overturned the FTC’s 2019 antitrust victory against QCOM. This helped propel QCOM shares to another new high on Wednesday, with the stock up 25% since its July 29 earnings release. Qualcomm stock has now climbed over 30% in 2020 and 60% in the last 12 months to double the broader tech sector. Despite the surge, QCOM still trades at a discount against its own 12-month highs in terms of forward sales.
Qualcomm has established itself as one of the early 5G standouts, as its modem processors are being used by the likes of Samsung and Apple. The iPhone maker’s next-generation and first 5G phone is due out this fall, despite some pandemic-based delays.
Looking ahead, our Zacks estimates call for QCOM’s adjusted Q4 earnings to jump 50%, on 23% higher revenue. Better yet, Qualcomm’s outlook appears even stronger for its fiscal 2021. Qualcomm’s positive earnings revisions activity helps it earn a Zacks Rank #2 (Buy) right now, alongside its “B” grades for Growth and Momentum in our Style Scores system. And Qualcomm’s 2.26% dividend yield top the S&P 500’s 1.69% average.
Taiwan Semiconductor Manufacturing Company TSM
Taiwan Semiconductor is the world’s largest semiconductor manufacturer, with 56% market share. This means that it’s helping drive the chip revolution and it will likely continue to for years to come, as some of the biggest and most innovative names in the market, including the likes of Nvidia, turn to TSMC to manufacture their chips. TSMC runs a dedicated semiconductor foundry business and it claims to boast the “world's largest semiconductor design ecosystem” and has enabled “85% of worldwide semiconductor start-up product prototypes.”
Investors should note that more tech firms are looking to foundries, such as TSMC, for their integrated circuit production because the costs and time involved have grown enormous. This makes the idea of building chips in-house far less attractive, if not impossible for many.
TSMC’s Q2 earnings surged 81% on 29% higher revenue, as it margins climbed. “Moving into third quarter 2020, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by 5G smartphones, HPC and IoT-related applications,” CFO Wendell Huang said in prepared remarks.
TSMC is set to help propel the next big thing in chips, the cutting-edge 5-nanometer transistors. And it appears that Wall Street is starting to get wise, with TSM shares up 55% since June 1 and 90% over the last year. TSMC is a Zacks Rank #2 (Buy) right now that also sports a “B” grade for Growth. The stock is also part of an industry that rests in the top 2% of our over 250 Zacks industries. Lastly, its 1.67% dividend yield crushes the 10-year U.S. Treasury note’s 0.67%.
Broadcom is a semiconductor firm that’s expanded its reach into infrastructure software solutions through acquisitions in recent years. AVGO posted better-than-expected second quarter earnings and sales in early June, with revenue up 4% for the period ended in early May.
Broadcom in Q2 generated record quarterly free cash flow of over $3 billion. This bolstered its balance sheet and helps support its strong dividend during what are still uncertain economic times.
Broadcom in December raised its dividend by 23% to $3.25 per share. AVGO’s current dividend yield comes in at 3.89% to help it crush Intel’s INTC 2.69% and other large-cap tech names. And this payout appears even better when we see that it’s not artificially boosted by a falling stock price. In fact, Broadcom hit new highs on Wednesday and is up over 70% since March 23 to easily outrun the semiconductor market’s 50%.
AVGO is currently a Zacks Rank #2 (Buy) that is part of a highly ranked Zacks industry. Peeking ahead, our estimates call for Broadcom’s adjusted fiscal 2020 EPS figure to pop 1% on 4.4% stronger revenue, which compares favorably to the broader market outlook. AVGO’s FY21 earnings are then projected to climb another 12% higher on 6% stronger sales.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Intel Corporation (INTC) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
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