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Should You Bet on Tech After Wednesday’s Rout? 4 Top Picks

Zacks

On Oct 10, tech stocks suffered their largest drop in seven years. This massive decline occurred on one of the worst days for markets in recent months. The Dow suffered an 800-point drop and the S&P 500 suffered its severest loss since February, primarily due to the steep fall in tech shares.

The wider market decline was a product of fears generated by rising yields. But tech majors were felled by other concerns, relating to trade, chip shortages and security and privacy concerns. This is why it is important to ask whether tech remains a compelling buy at this point.

Some analysts believe that Wednesday’s losses cannot be compared to the correction suffered earlier this year. Others think this is only a consolidation phase, likely to be followed by an upswing. It would be difficult to ignore one of the best performing sectors of the year, which makes select tech stocks must haves for your portfolio.

Multiple Factors Lead to Tech Slide


On Oct 10, the S&P 500 Technology Select SPDR (XLK) lost 4.8%, its largest decline since Aug 18, 2011. All of its 65 components suffered declines. The closely associated Communications Services Select SPDR (XLC) also lost 3.9%. The much-vaunted FANG group of stocks suffered particularly heavy losses.

Concerns that the trade dispute with China and resulting tariffs would have a massive impact on tech products was one of the major factors for the losses. The likely fallout of Intel’s INTC chip shortage was another major concern. Privacy and security related worries are other reasons for the recent tech reverses.

Is the Tech Rout Only Temporary?

Several market watchers point out that Wednesday’s losses are not comparable to the correction that started in January and ended only in April. Firstly, the losses suffered at that point were far more widespread. In contrast, banks were largely spared during the decline yesterday.

Losses were suffered mostly by tech stocks, particularly the heavyweights. Facebook FB, Amazon AMZN Netflix NFLX and Alphabet GOOGL declined 4.1% 6.2%, 8.4% and 4.6%, respectively. Shares of Apple AAPL also lost 4.6%.

A section of market watchers think that this is a consolidation phase and a necessary one at that. Also, the recent spurt in major tech names are being deemed as excessive in nature. This is why they believe that the losses suffered on Wednesday will soon be followed by an upward move.

Our Choices

Despite the losses suffered on Oct 10, several market watchers think that the recent reversal could be short-lived. Though all of the S&P 500’s tech sector components have experienced declines, tech majors have suffered the most.

Market watchers also think that this is only a phase of consolidation, soon to be followed by an upswing for tech stocks. This is why adding tech stocks to your portfolio is still prudent. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology, Inc. VSH is a global manufacturer and supplier of semiconductors and passive components.

Vishay Intertechnology has a VGM Score of A. The company’s expected earnings growth for the current year is 39.9%. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.

NetApp, Inc. NTAP provides enterprise storage and data management software and hardware products and services.

NetApp has a VGM Score of B. The company has expected earnings growth of 27.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.1% over the last 60 days.

j2 Global Inc. JCOM is a leading provider of unified messaging capabilities.

j2 Global has a VGM Score of B. The company’s projected growth rate for the current year is 10.6%. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days.

Control4 Corporation CTRL is engaged in providing automation and control solutions for the connected home.

Control4 has a VGM Score of B. The company’s expected earnings growth for the current year is 17.9%.

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