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Can These 4 Tech Stocks Retain Their Performance in 2018?


The year 2017 was a blockbuster year for investors as all the three major indices indicating the health of the U.S. market closed at record levels. An improved economic data for GDP, steady job additions, a favorable Consumer Confidence Index as well as factory activity data kept investors optimistic about the economy.

The Tech sector was one of the largest beneficiaries of this rally, with the Technology Select Sector SPDR ETF XLK registering a return of 32.2% in the last year, on top of a 12.9% gain it registered in 2016.

Tech Stocks Poised for Further Growth

The technology sector is likely to grow further in 2018, as evident from the recent forecast provided by Gartner Inc. IT on worldwide IT spending. The latest report from the independent research firm projects global IT spending to reach $3.7 trillion this year, representing an increase of 4.3% from $3.5 trillion projected in 2017.

The sector will continue to benefit from the rising demand for cloud-based platforms, rapid adoption of Artificial Intelligence (AI) tools, Augmented/Virtual (AR/VR) reality devices, autonomous cars, advanced driver assisted systems (ADAS), as well as Internet of Things (IoT) related software and hardware.

However, in our opinion, the major push will come from the recently-passed Tax Cuts and Jobs Act or tax bill as it will bring double benefit for tech companies. Firstly, it will lift corporate earnings and secondly, as companies across other sectors might utilize savings from lower tax as well as cash repatriations for technological upgradation this will again be conducive for the tech stocks.

Naturally, investing in the tech space makes perfect sense at this point.

Where to Put Your Money?

Today, we’ve zeroed-in on some tech stocks using our premium screen “VGM Style Score” which had performed phenomenally last year and have the potential to carry the momentum this year as well.

Our first choice is the world’s leading memory chip maker — Micron Technology, Inc. MU. The main reason behind the optimism surrounding the stock is improved prices for DRAM and NAND chips. This is primarily due to imbalances between industry demand and supply, which are leading to periodic shortage and temporary price hike. We believe Micron will continue its outperformance as long as demand for memory chips remains ahead of supply.

Based on the Zacks Consensus Estimate, Micron is anticipated to finish fiscal 2018 with EPS growth of 102.2% and sales growth of 36.9%. Micron is a Zacks Rank #1 (Strong Buy) stock and has a VGM Score of A. Last year, the stock rallied 87.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The next stock which makes to our list is DXC Technology Company DXC. The stock had been a favorite among investors, courtesy of its strategic deals, spin-off initiatives and senior notes offerings. DXC Technology is a result of the merger between Computer Sciences Corporation and Enterprise Services Division of Hewlett Packard Enterprise, which was concluded on Apr 1, 2017.

The merger has opened up avenues of growth and will help the combined entity become a leading player in the IT services domain. Post merger, DXC Technology became the world’s second largest end-to-end IT services providing company after Accenture plc. Since April 1 through Dec 29, 2017, shares of DXC Technology gained 37.6%.

Per the Zacks Consensus Estimate, DXC Technology has a long-term expected EPS growth rate of 10.5%. On top of this, the stock currently trades at a forward P/E multiple of 13.2x, which is lower than the industry average of 29x. DXC Technology is a Zacks Rank #1 stock and has a VGM Score of A.

Another pick is Lam Research Corporation LRCX, which supplies wafer-fabrication equipment (“WFE”) and services to the semiconductor industry. The improving WFE market, robust demand for server DRAM and elevated adoption rates of 3D NAND technology will continue to propel the company’s growth. The stock appreciated 74.1% in the last year.

Based on the Zacks Consensus Estimate, Lam is anticipated to finish fiscal 2018 with EPS growth of 48% and sales growth of 28.8%. On top of this, the stock currently trades at a forward P/E multiple of 13.1x, which is lower than the industry average of 19.4x. Lam is a Zacks Rank #2 (Buy) stock and has a VGM Score of A.

The next stock in our list is KLA-Tencor Corporation KLAC. The company is likely to benefit from an expanding product portfolio. Moreover, the technical complexity of manufacturing semiconductors and increasingly challenging yield issues are anticipated to drive growth for its process control and yield-management solutions. Shares of KLA-Tencor rallied 33.6% last year.

Per the Zacks Consensus Estimate, KLA-Tencor is anticipated to finish fiscal 2018 with EPS growth of 23% and sales growth of 13.5%. On top of this, the stock currently trades at a forward P/E multiple of 14.7x, which is lower than the industry average of 19.4x. KLA-Tencor is a Zacks Rank #2 stock and has a VGM Score of A.

Zacks Editor-in-Chief Goes ""All In"" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

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