Wall Street continues its dream run for 2021, with just six weeks left this year. Although the rally is broad-based, market participants are surprised with the performance of Nasdaq Composite. The tech-heavy index had an astonishing rally in the pandemic-ridden 2020. However, in the beginning of 2021, several economists and financial experts were skeptical about Nasdaq Composite due to the stretched valuation of the technology sector.
The Nasdaq Composite itself has witnessed a broad-based rally so far this year. Aside from technology stocks shares of various companies from the non-technology space have skyrocketed too. Here we have selected five high-flying stocks with a favorable Zacks Rank with more upside left. These are — Alphabet Inc. GOOGL, Tesla Inc. TSLA, Costco Wholesale Corp. COST, Applied Materials Inc. AMAT and NVIDIA Corp. NVDA
Nasdaq Composite Maintains Dream Run
The technology sector helped Wall Street to exit the coronavirus-induced short bear market and form a new bull market. Consequently, the Nasdaq Composite jumped 43.6% in 2020. However, the tech-laden index had a slow start 2021 compared with its peers, the Dow and the S&P 500.
Buoyed by the nationwide deployment of COVID-19 vaccination, the U.S. economy reopened faster-than-expected. As a result, investors’ preferences shifted from the overvalued technology stocks to the undervalued cyclical stocks, businesses of which suffered the most during pandemic-led lockdowns.
Nevertheless, the Nasdaq Composite has slowly gathered pace primarily due to the inherent strength of the technology sector supported by continuous inventions and innovations in this space. On Nov 18, the index touched a key milestone of 16,000 for the first time. On Nov 19, it recorded a new al-time high of 16,121.12 and a closing high of 16,057.44.
Year to date, the Nasdaq Composite has rallied 24.6%, marginally below the broad-market index — the S&P 500’s gain of 25.1% but well above the Dow’s gain of 16.3%. Notably, the composition of the Dow in more favorable to reopening stocks.
For Nasdaq Composite, aside from technology sector, several reopening sectors such as auto, retail, consumer discretionary and transportation also contributed significantly in 2021.
Technology is the Best Bet in the Long Term
We must not forget that the growing demand for hi-tech superior products has been a catalyst for the sector in an otherwise tough environment. A series of breakthroughs in 5G wireless network, cloud computing, predictive analysis, AI, self-driving vehicles, digital personal assistants and IoT, have given a boost to the overall space.
The leading emerging markets of Asia, Latin America, Africa and some European countries are still way behind in using digital technology compared with the developed world. While mobile phone penetration is nearly 90% in these countries, a large number of people are still using phones with old features, since voice communication and not data served most of their needs. Even those, who are using smartphones, rarely utilize the online digital features.
However, the outbreak of coronavirus quickly changed the lifestyle and lookout of these people. People were not entirely used to digital platforms for doing office work (work from home), ordering food and other daily needs or transferring money and making payments. Moreover, online schooling, video conferencing and virtual networking have now become essential. The countries that are more digitized have been able to minimize their losses during the pandemic. These are major lessons for the other countries.
Our Top Picks
We have narrowed our search to five Nasdaq Composite listed corporate behemoths (market capital > $100 billion). These stocks have popped more than 40% year to date and still have upside left. Moreover, these stocks have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Alphabet Inc. has been strongly emphasizing AI techniques and the home automation space that should aid business growth in the long term. Solid momentum across search, advertising, cloud and YouTube businesses aided the results of GOOGL. Further, the growing proliferation of consumer online activities and rising advertiser spending remained as tailwinds.
Alphabet’s robust cloud division continues to be the key catalyst. Expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in its search segment are enhancing the search results. Moreover, GOOGL’s mobile search is constantly gaining traction.
Zacks Rank #1 Alphabet has an expected earnings growth rate of 84% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 30 days. The stock price of GOOGL has climbed 70% year to date.
Tesla Inc. has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a major chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.
In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost its earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.
Zacks Rank #1 Tesla has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 9.7% over the last 30 days. The stock price of TSLA has appreciated 61.2% year to date.
Costco Wholesale Corp. operates membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. COST offers branded and private-label products in a range of merchandise categories.
Costco’s growth strategies, better price management, decent membership trend and increasing penetration of e-commerce business reinforce its position. The strategy to sell products at discounted prices has helped Costco to draw customers seeking both value and convenience. These factors have been aiding in registering impressive sales numbers.
Zacks Rank #1 COST has an expected earnings growth rate of 9.7% for the current year (ending August 2022). The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last 30 days. The stock price of Costco has surged 41.7% year to date.
NVIDIA Corp. is benefiting from the coronavirus-induced work-from-home and learn-at-home wave. NVDA is also benefiting from strong growth in GeForce desktop and notebook GPUs, which is boosting gaming revenues. Moreover, a surge in Hyperscale demand remains a tailwind for NVIDIA’s Data Center business.
The expansion of NVIDIA GeForce NOW is expected to drive user base. Further, the solid uptake of AI-based smart cockpit infotainment solutions is a boon. The collaboration with Daimler-owned Mercedes-Benz is expected to further strengthen NVIDIA’s presence in the autonomous vehicles and other automotive electronics spaces.
Zacks Rank #2 NVDA has an expected earnings growth rate of 71.2% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last 7 days. The stock price of NVIDIA has soared 152.7% year to date.
Applied Materials Inc. is benefiting from strong momentum across Semiconductor Systems & Applied Global Services. Further, solid demand for silicon in several applications across various markets remains a tailwind for AMAT. The growing usage of OLED technology in smartphones, televisions and computers, remains positive for Applied Materials.
Further, increased customer spending in foundry & logic on the back of the rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets, is a major positive for AMAT. Also, strong momentum in conductor etches is benefiting Applied Materials’ position in DRAM and NAND.
Zacks Rank #2 AMAT has an expected earnings growth rate of 16.2% for the current year (ending October 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 7 days. The stock price of Applied Materials has jumped 73.9% year to date.
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