Seasonal tailwinds driven by end of year retirement contributions, bonuses, and portfolio re-balancing has offset uncertainty so far in 2020. Despite risks associated with impeachment, trade tariffs, and economic headwinds due to coronavirus quarantines in China, the S&P 500 has marched to new highs.
Getting off a moving bus doesn’t make sense, but evidence is mounting that a short-term 3% to 5% pullback is likely. For example, over 47% of the 1,600 widely-traded stocks in our universe are trading more than 5% above their 200-day moving average, an uncommonly high level that’s historically favored unwinding stocks with shaky fundamentals and compiling a wish list of top stocks to buy when markets retreat.
Source: Top Stocks For Tomorrow.
As we push deeper into 2020, fading seasonal tailwinds could make focusing on high-quality companies within the best sectors and industries incredibly important. If so, then your shopping list ought to include top companies in technology, such as Alteryx (NYSE:AYX), Coupa Software (NASDAQ:COUP), Intuit (NASDAQ:INTU), and Globant (NYSE:GLOB). They’re among the nearly fifty most highly-rated technology stocks in our marketplace service right now. Read on to see the entire list and find out why owning those stocks in particular could pay off.
We explain our methodology in-depth here, but our rankings are based on forward earnings growth expectations, earnings beats history, insider buying, short-term and long-term institutional money flow, future valuation relative to historical valuation, contra-trend short interest analysis, and quarterly seasonality over the past decade.
Once scores are calculated for individual stocks, they’re aggregated by sector and industry, allowing us to rank them from best to worst. Currently, the technology sector is the top-ranked mid cap sector and its highly-rated in large cap and small cap, too.
Source: Top Stocks For Tomorrow.
The top technology stocks to buy
Because stocks historically follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme, the top-scoring stocks offer the best opportunity for upside.
There are nearly 50 buy-rated technology stocks in our marketplace service currently, including Alteryx, Coupa Software, Intuit, and Globant, which are among my favorites. Those companies address business challenges that are likely to remain pain points regardless of the economy, and since they target big addressable markets, double-digit growth could continue to support shares for a while.
For example, Alteryx helps managers and data scientists make better decisions using artificial intelligence and data mining tools. Its solution captures information from disparate databases, so it can be manipulated easily with drag-and-drop simplicity. Transportation companies use it to improve their hedging decisions, drugmakers use it to manage clinical trial data, and consumer goods companies use it to make better merchandising decisions.
Alteryx’s dollar-based net expansion rate, or revenue from existing customers relative to one year ago, has exceeded 129% for over 12 consecutive quarters. Thanks to new accounts and organic growth within existing accounts, its revenue grew 65% to $418 million in 2019. Management has reported earnings outpacing industry analysts estimates in each of the past four quarters and in 2019, its adjusted EPS increased 56.7% to $0.94. With an addressable market worth nearly $50 billion, according to IDC, there should be plenty of room for additional growth.
I think a similar long-haul opportunity exists for Coupa Software, a company that helps clients get a grip on their spending by consolidating purchase orders onto one platform.
Through the first 9 months of 2019, Coupa’s sales increased 50% to $278 million, and because controlling expenses is critical to businesses, putting all orders into one system for reporting and budgeting is mission-critical in good times and bad times.
Coupa already works with 900 clients, but it thinks 100,000 companies could benefit from its tools. Since its target market is worth $56 billion, its target revenue goal is $1 billion. To get there, it’s modeling for 30% compounded annual growth.
If it delivers on its long-term goal, then Coupa should be able to reward investors with increasingly bigger profits. The company has beat analyst estimates in each of the past four quarters, and in the future, it believes its gross margin can exceed 80% and its operating margin can increase to over 25%, up from 73% and 5%, respectively.
Source: Coupa Software.
A professional consulting firm, Globant’s solution is arguably mission critical too, because it embeds highly-trained people within organizations to deliver digital strategy projects more effectively.
It does this by deploying small, empowered, and specialized teams called Agile pods. Since technology is constantly changing, these teams are great way to keep companies on the cutting edge, allowing them to make the most of digital revenue opportunities.
For instance, Globant’s been helping its biggest client, Disney (NYSE:DIS), with the launch of its new streaming service. The roll-out of Disney+ is a big reason why Globant’s revenue is accelerating, but Globant also works with over 700 other customers, including 104 that generate over $1 million in revenue.
In Q4 2019, revenue was $184.3 million, up 31.5% year over year, and adjusted EPS was $0.64, up from $0.50 in Q4 2018. Since 2014, revenue has grown at a compounded annual rate of 27%, and there’s plenty of opportunity to win more business because the market for digital Services is estimated to reach $154.4 billion by 2022, up from $116.3 billion in 2020.
Intuit also offers insight that complements a customer’s own skill-set.
Its Quickbooks helps millions of small businesses track their financials, and its TurboTax platform provides businesses and households with a simple-to-use tool for filing federal and state taxes.
Intuit’s shift from the traditional model of selling boxed software in stores to selling software-as-a-service solutions online has been a boon to sales and profitability. Instead of lumpy sales associated with software product updates, subscriptions provide revenue clarity while also ensuring customers are getting the most up-to-date features.
The transition is a big reason why Intuit’s revenue has soared to nearly $7 billion from about $1 billion, and its customer count has swelled to over 50 million from less than 6 million this decade.
In Intuit’s fiscal Q1 2020, total revenue grew 15% year over year to $1.2 billion, led by a 35% increase in online revenue from small businesses. This fiscal year, management’s guiding over 10% revenue growth to $7.4 billion and 11% EPS growth to $7.50. Buying shares now could be especially wise because shares historically perform very well through tax season.
Source: Top Stocks For Tomorrow.
Although these four technology stocks are among my favorites, they’re far from the only technology stocks investors can consider buying now. Weekly, we custom screen for the highest-scoring names within individual sectors, including technology, and this week, we share the following list of top rated technology stocks with our subscribers.
|TECHNOLOGY||2/20/2020||4 Week MA|
|3D Systems Corporation||(DDD)||COMPUTER HARDWARE||110||107.5|
|Open Text Corporation||(OTEX)||SOFTWARE-APPLICATION||105||103.75|
|Kulicke and Soffa Industries, Inc.||(KLIC)||SEMICONDUCTOR EQUIPMENT & MATERIALS||105||101.25|
|Akamai Technologies, Inc.||(AKAM)||SOFTWARE-INFRASTRUCTURE||105||102.5|
|Coupa Software Incorporated||(COUP)||SOFTWARE-APPLICATION||105||102.5|
|Diodes Incorporated||(DIOD)||SEMICONDUCTOR- INTEGRATED CIRCUITS||105||97.5|
|Gaia, Inc.||(GAIA)||INTERNET CONTENT & INFORMATION||105||108.75|
|Verint Systems Inc.||(VRNT)||SOFTWARE-INFRASTRUCTURE||105||100|
|Cognex Corporation||(CGNX)||SCIENTIFIC & TECHNICAL INSTRUMENTS||100||85|
|ASML Holding N.V.||(ASML)||SEMICONDUCTOR EQUIPMENT & MATERIALS||100||97.5|
|Amphenol Corporation||(APH)||ELECTRONIC COMPONENTS||100||85|
|Jack Henry & Associates, Inc.||(JKHY)||INFORMATION TECHNOLOGY SERVICES||100||87.5|
|NXP Semiconductors N.V.||(NXPI)||SEMICONDUCTOR- BROAD LINE||100||96.25|
|FLIR Systems, Inc.||(FLIR)||SCIENTIFIC & TECHNICAL INSTRUMENTS||100||81.25|
|Microchip Technology Incorporated||(MCHP)||SEMICONDUCTOR-SPECIALIZED||100||91.25|
|Intel Corporation||(INTC)||SEMICONDUCTOR- BROAD LINE||100||98.75|
|Texas Instruments Incorporated||(TXN)||SEMICONDUCTOR- BROAD LINE||100||80|
|Broadcom Inc.||(AVGO)||SEMICONDUCTOR- INTEGRATED CIRCUITS||100||86.25|
|FleetCor Technologies, Inc.||(FLT)||SOFTWARE-INFRASTRUCTURE||100||92.5|
|Guidewire Software, Inc.||(GWRE)||SOFTWARE-APPLICATION||100||92.5|
|NetScout Systems, Inc.||(NTCT)||SOFTWARE-INFRASTRUCTURE||100||93.75|
|Palo Alto Networks, Inc.||(PANW)||SOFTWARE-INFRASTRUCTURE||100||97.5|
|Paylocity Holding Corporation||(PCTY)||SOFTWARE-APPLICATION||100||97.5|
|Q2 Holdings, Inc.||(QTWO)||SOFTWARE-APPLICATION||100||97.5|
|SolarEdge Technologies, Inc.||(SEDG)||SOLAR||100||93.75|
|Silicom Ltd.||(SILC)||COMMUNICATION EQUIPMENT||100||95|
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Disclosure: I am/we are long AYX, DDD, INTU, ADBE. CRM, FIVN, MDB, PLAN, SMAR, SQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.