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 Qualcomm stock or a lesser-known name like CrowdStrike stock, the best tech stocks share many common traits.
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The best tech stocks boast strong fundamentals along with leading price performance in their industry groups. Many also show favorable fund ownership trends.
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
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 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.
But the stock market uptrend has come under pressure again, hurt by five distribution days for the S&P 500 in January.
You can monitor the distribution day count every day in The Big Picture column. Read it every day for exclusive stock market analysis.
To be sure, the coronavirus stock market crash last year resulted in a lot of broken stock charts. But new leaders emerged, and there’s still a fair supply of bullish stock charts out there.
Five Top Tech Stocks
The best tech stocks to buy or watch now include two leaders in the security software group, CrowdStrike (CRWD) and Palo Alto Networks (PANW), along with Qualcomm (QCOM), PayPal (PYPL) and Pinduoduo (PDD). The common bond among all five stocks? Bullish relative strength lines and high Composite Ratings from IBD.
Why This IBD Tool Simplifies The Search For Top 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. Leadership is broad-based in the technology sector, which means it has a good chance of maintaining its market leadership.
CrowdStrike, Pinduoduo and PayPal are members of Leaderboard.
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.
CrowdStrike Stock
After a breakout from a second-stage base in early December, the strong performer in IBD’s security software group is making a solid first test of its 10-week moving average.
After a series of quarterly losses amid booming sales growth, CRWD stock has turned a profit in the last two quarters. In the past seven quarters, sales growth has ranged from 84% to 103%.
Growth like this tends to fuel big increases in fund sponsorship, and that’s certainly been the case with CrowdStrike. In 2020, the number of funds owning shares jumped from 345 to 1,038. A key tenet of growth investing is to target stocks showing big increases in fund sponsorship;.
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The company’s cloud-based Falcon platform provides endpoint security, threat intelligence and cyberattack response services
CrowdStrike’s next earnings report is due on or around Mar. 18.
Composite Rating: 96 (scale of 1-99 with 99 being the best)
Latest-quarter EPS % change: #214% (8 cents vs. -0.07)
Latest-quarter sales % change: +86%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax profit margin: n/a
Qualcomm Stock
Shares of the mega-cap chip designer soared 73% in 2020 amid increasing demand for faster 5G smartphones. The Apple iPhone and 5G chip giant also has its sights set on new markets like data centers, connected cars and cloud gaming.
In early January, Qualcomm’s board announced that Cristiano Amon will succeed Steve Mollenkopf as chief executive, effective June 30. Amon is currently the president of Qualcomm and has been with the company since 1995.
Qualcomm recently announced plans to buy startup Nuvia for about $1.4 billion. Nuvia, founded by former Apple engineers, develops central processing units for high-performance computing applications.
After reporting stellar results in early November, Qualcomm’s next earnings report is due Feb. 3 after the close. Analysts are looking for another quarter of bullish growth. The Zacks consensus estimate is for adjusted profit of $2.10 a share, up 112% year-over-year, with sales up 63.5% to $8.3 billion.
Qualcomm and fellow Apple supplier Qorvo (QRVO) rallied sharply after Skyworks (SWKS) reported bullish bottom-line and top-line growth on Jan. 28. But all three stocks pared gains due to weakness in the broad market.
Indeed, it’s a challenging earnings environment, where strong profit reports from Apple and enterprise software leader ServiceNow (NOW) were met with selling.
After a low-volume breakout from a flat base with a 161.17 buy point. Qualcomm is below the buy point and testing its 10-week moving average.
Qualcomm’s next earnings report is due Feb. 3 after the close.
Composite Rating: 95
Latest-quarter EPS % change: 86%
Latest-quarter sales % change: +73%
Three-year annualized EPS growth rate: -2%
Annual return on equity: 92.1%
Annual pretax margin: 24.4%
PayPal Stock
PayPal recently introduced the ability to buy, hold and sell select cryptocurrencies like Bitcoin, Ethereum, Bitcoin Cash and Litecoin directly within the PayPal digital wallet.
The digital payments firm has been able to maintain strong earnings and sales even with a market capitalization of north of $250 billion. Full-year profit is expected to rise 28% in 2020 and 20% in 2021.
Fourth quarter earnings are due Feb 3 after the close.
The Zacks consensus estimate is for adjusted profit of $1 a share, up 16% from the year-ago quarter, with revenue up 22% to $6.07 billion.
Composite Rating: 97
Latest-quarter EPS % change: 41%
Latest-quarter sales % change: +25%
Three-year annualized EPS growth rate: +25%
Annual return on equity: 21.8%
Annual pretax margin: 24.9%
Pinduoduo Stock
Pinduoduo, with a market capitalization of around $200 billion, operates an e-commerce platform in China.
The company’s e-commerce model combines social networking with group shopping. Pinduoduo runs the third-largest e-commerce platform in China by gross merchandise volume, behind Alibaba Group (BABA) and JD.com (JD).
The company on Nov. 12 reported adjusted profit of 5 cents a share. Revenue jumped 99% to $2.o9 billion. The company counted 643.4 million monthly average users during the quarter, up 50% from the year-ago period.
Regulatory concerns have hit many Chinese stocks, but Pinduoduo continues to hold gains nicely after a breakout in November. A near test of the 10-week moving average during the week ended Jan. 1 put the stock in an alternate buy zone.
Another interpretation of Pinduoduo’s chart is that it recently formed an ascending base with a 187.80 buy point. The three pullbacks are more easily seen on the daily chart. The first pullback occurred after the stock hit an intraday high of 155.61.
PDD stock hit an intraday high of 195.11 on Jan. 11, but the breakout quickly turned tail. Despite a sharp reversal during the week ended Jan. 29, Pinduoduo’s technical picture is still intact as it holds above its 10-week moving average.
Pinduoduo’s next earnings report is due on or around March 10, although the stock could be a market mover on Feb. 2 when group peer Alibaba (BABA) reports quarterly results.
Composite Rating: 92
Latest-quarter EPS % change: #+125% (0.05 vs -0.20)
Latest-quarter sales % change: +99%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax margin: n/a
Palo Alto Networks
The large-cap stock is one of several leaders in the security software group, along with CrowdStrike, Zscaler (ZS), SailPoint Technologies (SAIL) and FireEye (FEYE).
Palo Alto Networks gapped up on Nov. 16 after reporting earnings. It cleared an alternate entry of 275.13 after breaking out of a double-bottom base with a 260.25 buy point.
PANW stock traded tightly near highs after, a sign of strength and support, and formed a flat base with a 375.10 buy point. The buy point was derived by adding 10 cents to the stock’s Dec. 23 intraday high.
But PANW stock fell nearly 4% during the week ended Jan. 29. It’s now making a first test of its 10-week moving average. A bounce off the support level with conviction would put the stock in an alternate buy zone.
Why This IBD Tool Simplifies The Search For Top Stocks
Palo Alto Networks’ next earnings report is due on around Feb. 24.
Composite Rating: 96
Latest-quarter EPS % change: 54%
Latest-quarter sales % change: 23%
Three-year annualized EPS growth rate: 18%
Annual return on equity: 36.1%
Annual pretax margin: 18.2%
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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