Yahoo Finance 3 Tech Titans Set to Break Out
Tech Stocks Climb the Wall of Worry
From a macro perspective, investors have deep-rooted concerns about the current stock market, including a potential looming recession, stubborn inflation, a debt crisis, geopolitical escalations, and more. Small-cap stocks within the Russell 2000 Index ETF (IWM) have dragged as regional banking stocks within the SPDR Regional Bank ETF (KRE) continue to struggle.
However, despite the fear-mongering from many investors and the underperformance in some regions of the market, tech has marched higher in a stair-stepping fashion thus far in 2023. Currently, it is in the process of breaking out.
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Despite a rough period of outperformance in 2022, it’s easy to see why investors are anxious to get exposure to the Nasdaq 100 ETF (QQQ). Over the past 20 years, the returns have been stellar from both a total return and a relative basis. Since 2003, the QQQ has returned 982.8% versus just 541.5% for the S&P 500 Index.
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Though tech has dominated in 2023, not all tech stocks are created equally. For example, former high-flying, lesser-quality tech stocks such as Block (SQ) and Zoom (ZM) are still stuck in downtrends. Conversely, stocks such as Apple (AAPL) and Microsoft (MSFT) have performed so well that they now account for nearly 14% of the S&P 500 Index – the highest weighting for two companies in at least 40 years. So, it’s clear - investors are gravitating toward large-cap, institutional quality stocks with loads of cash.
While stocks like AAPL, MSFT, and Shopify (SHOP) have performed well, new buyers looking to enter tech need to be strategic and not chase stretched charts. Below are three high-quality tech stocks setting up:
My first pick is Alphabet (GOOGL). One of my favorite indications that a position will move higher occurs when a stock can shake off bad news quickly. My thinking is that if bad news is no news, no news should equate to good news.
In early February, GOOGL shares tanked more than 10% after its AI chatbot Bard, made a mistake in its public-facing demo. While it was not a good look for the company or the stock, bargain hunters used the sell-off as an opportunity to accumulate shares. Last week, in a show of conviction, insiders scooped up a cool $20 million worth of the company’s stock. GOOGL is a mega-cap tech name that will essentially track the Q’s but should outperform to the upside over the next 6-12 months.
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My next choice is Oracle (ORCL). Oracle is one of the largest enterprise-grade database, middleware, and application software providers. In recent years, Oracle has expanded its cloud computing operations dramatically. The company offers cloud solutions and services that are used to build and manage various cloud deployment models. Oracle also entered the hardware business after acquiring Sun Microsystems several years ago.
Despite Oracle’s massive size, it is not talked about as much as stocks such as Microsoft or Amazon Oracle is not as “sexy” as these companies; however, it produces a ton of revenue and is a dominant player in its space. Furthermore, though Oracle has a beta of just 1 (the same volatility as the S&P 500 Index), it has outperformed 92% of stocks. Low volatility and high returns are the combination that makes for an excellent addition to any portfolio. Last week, Oracle broke out of a classic bull flag pattern on expanding volume.
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When discussing dominance and quality in the software space, it is impossible to leave out Salesforce (CRM). Salesforce is the world’s leading Customer Relationship Management (CRM) company. Though CRM’s earnings growth slowed briefly during the uncertainty of the pandemic, the company is beginning to reap the benefits of its recent acquisition spree. Over the past few years, CRM has acquired Microsoft Teams competitor Slack, Tableau, ClickSoftware, and Mulesoft. Furthermore, key strategic partnership agreements with Alphabet and Amazon (AMZN) have helped the company to bolster growth. Last quarter, earnings growth rocketed by 100% year-over-year.
Beyond a resumption of strong growth, CRM is very attractive from a valuation perspective. CRM’s P/E ratio of ~37 is the lowest in at least ten years.
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Technically, the stock is consolidating in a bullish manner as it approaches its 50-day moving average for the first time since breaking out earlier this year. The first pullback to the 50-day moving average should offer investors a low-risk entry point and give them a chance to gain a cushion in the stock before it reports earnings at the end of the month.
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Salesforce Inc. (CRM) : Free Stock Analysis Report
Oracle Corporation (ORCL) : Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Shopify Inc. (SHOP) : Free Stock Analysis Report
Block, Inc. (SQ) : Free Stock Analysis Report
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
