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‘Long Nasdaq’ Trade Swaps Bullish Dollar Trade: Top 5 Picks

Zacks

As per the Bank of America Merrill Lynch’s world fund manager’s survey for May, the "long Nasdaq" is the most popular trade, replacing the long U.S. dollar trade that had dominated the market for the last five months. The tech-laden Nasdaq continues to touch record highs this year, on potential tax reforms and impressive first-quarter earnings.

While investors are piling into tech stocks, the U.S. dollar took a beating after President Trump shared classified information with Russia. Trump, looking forward to push dollar down to aid exporters, also saw fund managers slashing longs of the greenback. On the contrary, they doubled their long position in the tech stocks.

Banking on these bullish sentiments, investing in sound tech stocks listed on the Nasdaq will be prudent.

Nasdaq Hits Record High, Tech Gains


The Nasdaq Composite Index scaled a record high for the second time in a row this Tuesday. The tech-heavy benchmark surged 33% to close at 6,169.87, slightly lower than the intraday high of 6,170.16. It has gained 14.24% so far this year, after nabbing its 32nd record close on May 15. Nasdaq’s year-to-date gain comfortably surpassed the 6.2% gain for Dow Jones and 7.3% rise for the S&P 500.

The bulk of Nasdaq’s rise in 2017 is backed by the five tech-behemoths – Apple Inc. AAPL, Netflix, Inc. NFLX, Alphabet Inc. GOOGL, Facebook, Inc. FB and Amazon.com, Inc. AMZN. These companies have gained considerably since their initial public offering 20 years back.

Investors’ optimism over Nasdaq’s gain is increasing, thus making it the most crowded trading hub right now. Gains among tech stocks are boosting the benchmark index. Trump’s intentions to lower the U.S. tax code will help tech stocks return cash held overseas to the U.S. Tech stocks have stashed around $2.4 trillion in overseas market. Such cash could be used to spur capital investment and create more jobs in the country. Further, it might be used for share buybacks, paying dividends and pay down debts.

Also, impressive performance of the technology stocks in the first-quarter 2017 earnings season is currently supporting Nasdaq’s upward trajectory. Our latest Earnings Preview report reveals that around 48 technology stocks, belonging to the S&P 500 group, have reported earnings till May 12, accounting for 88.2% of the sector’s total market capitalization, with 77.1% topping EPS (earnings per share) estimates and 79.2% coming in ahead of top-line expectations.

In fact, we project earnings of all the technology stocks in the S&P 500 Index to witness 16.2% year-over-year growth, while revenues are likely to be up 6.1%.

Dollar Trade Fizzles

Bank of America, on the other hand, noted that the Dollar index slipped to a six-month low this Tuesday, majorly due to the concerns regarding Donald Trump’s interaction with U.S. ambassador and Russia’s foreign minister.

Investors deem that the U.S. President might have shared classified intelligence with Russia and fear the same to be an aggressive legislative agenda. Notably, the disappointing U.S. economic data is also augmenting the Dollar selling pressure these days.

5 Best Tech Picks for Your Portfolio

With the Nasdaq gaining traction, thanks to rise in demand for tech stocks, investing in the same will be judicious. We have, thus, zeroed in on five hot tech stocks below, with the help of our Zacks Stock Screener.

These stocks not only carry a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy), but also are poised for significant growth in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here. Notably, these picks flaunt a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Applied Optoelectronics, Inc. AAOI manufactures, designs and sells premium fiber-optic networking products. This Zacks Rank #1 stock currently carries a VGM score ‘B’. The projected earnings growth rate of the stock for this year is 269.40%, higher than the Electronics – Semiconductors industry’s projected growth rate of 10.50%.

MKS Instruments, Inc. MKSI provides subsystems, instruments and process control solutions in the global forum. This Zacks Rank #1 stock currently carries a VGM score ‘B’. The projected earnings growth rate of the stock for 2017 is 63.80%, higher than the Electronics – Manufacturing Machinery industry’s projected growth rate of 23.70%.

Ultra Clean Holdings, Inc. UCTT creates, engineers, designs various types of tests production tools, subsystems and modules for the semiconductor equipment and capital equipment industry. This Zacks Rank #1 stock currently carries a VGM score ‘B’. The projected earnings growth rate of the stock for 2017 is 159.00%, higher than the Electronics – Manufacturing Machinery industry’s projected growth rate of 23.70%.

Ichor Holdings, Ltd. ICHR engineers, manufactures and designs fluid delivery subsystems. This Zacks Rank #1 stock currently carries a VGM score ‘A’. The projected earnings growth rate of the stock for 2017 is 76.70%, higher than the Electronics – Semiconductors industry’s projected growth rate of 10.50%.

LightPath Technologies, Inc. LPTH is a premium manufacturer and designer of optical components and assemblies. This Zacks Rank #2 stock currently carries a VGM score ‘A’. The projected earnings growth rate of the stock for fiscal 2017 is 72.20%, higher than the Electronics – Miscellaneous Components industry’s projected growth rate of 20.20%.

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