The U.S. earnings season is under way. So far, only 19 out of 418 companies in the U.S. technology sector have reported their latest earnings results; next week, we will see earnings from big names such as Apple Inc. and Microsoft Corp. The sector remains under pressure. The Technology Select Sector SPDR Fund ETF (XLK) is down 28.7 per cent year-to-date, which is still better than the dismal performance of the tech-heavy Nasdaq 100 index, down 31.3 per cent over the same period. This week we screened for stocks in the beaten-down sector that are outperforming their benchmarks ahead of their upcoming release of earnings.
We used Trading Central’s Strategy Builder to search for U.S. technology stocks that are indicating a history of strong earnings growth, and price performance that is better than either XLF or the Nasdaq 100.
We begin by setting a minimum market capitalization threshold of US$10-billion. We wish to focus on mid- to large-cap names in the market in order to avoid smaller, more volatile stocks.
Next, we filtered for stocks that have had a price return better than minus 10 per cent over the past four weeks and better than minus 30 per cent year-to-date, in order to find stocks that are outperforming their benchmarks.
Finally, we screened for tech stocks that are indicating five-year EPS growth rates above 20 per cent. We like companies that have a proven track record of growing their earnings per share.
For informational purposes, we have also included the recent stock price, dividend yield, price-to-earnings ratio and one-year price return.
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and around the globe.
Topping our list is Gartner Inc. (IT-N), a technology research firm. The company is indicating a five-year EPS growth rate of 32 per cent. The company has the second-best four-week and year-to-date price performance on our list at minus 0.5 per cent and minus 11.1 per cent, respectively. The company is due to report its third-quarter earnings on Nov. 1. The last time the company reported quarterly earnings, the stock price gained 7.7 per cent intraday.
Tech giant Apple Inc. (AAPL-Q) has the highest market cap on our list, at US$2.3-trillion. The company is indicating five-year historical EPS growth rate of 22 per cent. Despite being the largest tech stock in the Nasdaq 100, the stock price is only down 21 per cent year-to-date, outperforming its benchmark. The company is expected to report fiscal fourth-quarter earnings on Oct. 27. The last time the company reported quarterly earnings, the stock price gained 3.3 per cent intraday.
Fortinet Inc. (FTNT-Q), a cybersecurity and networking solutions company, has the highest five-year historical EPS growth rate on our list at an impressive 82 per cent. Looking at price performance, the company has the highest four-week price performance on our list at 4 per cent. The company is slated to report third-quarter earnings on Nov. 2. The stock price slid 16.3 per cent after the last earnings release.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described has a 16-per-cent annualized total return, compared with 12 per cent for the Nasdaq 100.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.