Don't Be Fooled by These China-Focused Tech Stocks

After a stellar ride, the technology sector witnessed wild swings in March thanks to the decline in FANG stocks and other high-technology names. The tech onslaught stemmed from a slew of negative news from some of the key companies in the space.

Behind The Plunge

The initial panic was created by Facebook FB after the data breach report that sparked concerns about data privacy and security, and will likely lead to increased scrutiny and possible regulatory pressure. Then, Nvidia NVDA announced the suspension of self-driving tests, raising concerns over the new growth areas in the space and pushing shares down. Twitter TWTR also dropped on expectations of further regulation on its social media platform while Tesla TSLA touched a one-year low on Moody’s downgrade. All these news have raised concerns over the growth of the hottest technology trends like autonomous cars and artificial intelligence.

Adding to the woes is the decline in Amazon shares late last week that has shed about $30 billion from its market value on a single day. News that President Donald Trump is looking to target the e-commerce giant over antitrust or competition laws and is considering ways to change the tax treatment took toll on the stock. As a result, the S&P Technology Sector was off 4% in March and is likely to see rough trading this month as well.

Trade War Fears Reignited

Fading trade war fears between the two largest economies, United States and China, seems back on the table with the start of April. China has retaliated against Donald Trump’s taxes on imported steel and aluminum with its own tariff of up to 25% on a series of 128 products worth $3 billion from the United States, including pork and wine, effective today. The Trump administration, looking to punish Beijing over technology transfer policies, is expected to unveil the list of Chinese imports targeted for U.S. tariffs this week.

Trump has already signed an executive memorandum to impose tariffs on up to $60 billion in Chinese imports targeting the technology, telecom, and apparel sectors. The round of sanctions and retaliation could trigger a global trade war, hurting the global economy and corporate profits at big U.S. exporters. In particular, technology stocks, which are the biggest contributors of the nine-year bull market and a Trump rally, are expected to be hit hard as most of the tech companies, especially semiconductor manufacturers and software companies, have large operations in the Chinese market.

Given this, we have highlighted five tech stocks to stay away from given their huge exposure to China. In spite of their double-digit projected earnings growth and positive estimate revisions for this year as well as a strong Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), these stocks are vulnerable to the ongoing trade jitters.

Skyworks Solutions Inc. SWKS

This Massachusetts-based company designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. The company saw rising earnings estimate revision of 11 cents for this fiscal (ending September 2018) over the past 60 days and has an expected growth rate of 12.40%. About 83% of the company’s revenues comes from China. The stock has a Zacks Rank #3 and belongs to the bottom-ranked Zacks industry (bottom 18%). It was down nearly 6% last month.

Micron Technology Inc MU

Micron Technology is one of the leading worldwide providers of semiconductor memory solutions. The stock saw solid earnings estimate revision of 68 cents for the fiscal year (ending August 2018) with an expected earnings growth rate of 121.57%. Micron Technology currently has a Zacks Rank #1 and falls under the top-ranked Zacks industry (top 2%). The stock surged 9.5% last month. More than half of the revenue comes from China. You can seethe complete list of today’s Zacks #1 Rank stocks here.

Broadcom Limited AVGO

Broadcom is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. It saw positive earnings estimate revision of 19 cents over the past month for the fiscal year (ending October 2018) with an expected growth of 23.10%. The stock has a Zacks Rank #3 and belongs to the bottom-ranked Zacks industry (bottom 6%). It is down nearly 3% last month.

Texas Instruments Incorporated TXN

Texas Instruments is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors. By employing the world's brightest minds, TI creates innovations that shape the future of technology. The stock saw positive earnings estimate revision of a couple of cents and has an estimated growth rate of 16.59% for this year. It carries a Zacks Rank #3 and falls under the top-ranked Zacks industry (top 10%). The stock shed 2.5% last month.

Marvell Technology Group Ltd. MRVL

Marvell Technology is a leading designer, developer and supplier of mixed-signal and digital signal processing integrated circuit for high-speed, high-density, digital data storage and broadband digital data networking markets. The stock has an estimated growth rate of 13.45% for the fiscal (ending January 2019) and saw positive earnings estimate revision of couple of cents over the month. It has a Zacks Rank #3 and belongs to the bottom-ranked Zacks industry (bottom 50%). The stock lost nearly double-digits last month. Marvell Technology also generates more than half of the revenue from China.

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Facebook, Inc. (FB) : Free Stock Analysis Report
 
Twitter, Inc. (TWTR) : Free Stock Analysis Report
 
Marvell Technology Group Ltd. (MRVL) : Free Stock Analysis Report
 
Skyworks Solutions, Inc. (SWKS) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
Broadcom Limited (AVGO) : Free Stock Analysis Report
 
Texas Instruments Incorporated (TXN) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
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