The best tech stocks to buy or watch aren’t hard to find, as long as you’re fishing in the right pond. Whether it’s a widely held name like Facebook stock or a lesser-known name like Roblox stock, the best tech stocks share many common traits.
The best tech stocks boast strong fundamentals along with leading price performance in their industry group. Many also show favorable fund ownership trends.
Fund sponsorship is still light when it comes to new issue Roblox (RBLX), but accelerating revenue growth give Roblox stock the look of a potential stock market leader.
Meanwhile, a strong earnings report from Facebook (FB) on April 29 fueled a gap-up over an alternate entry of 315.98. Even when technology stocks were under selling pressure in May, Facebook stock paid a visit to its 10-week moving average and quickly found support.
Fishing in the right pond means targeting top stocks showing resilience and holding near highs. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.
Stock Market Health
Making money in growth stocks has become more challenging after a 40%+ gain for the Nasdaq composite in 2020.
The 2020 stock market rally started with a follow-through day for the S&P 500 on April 2. It soared 2.3% in higher volume, confirming a new uptrend on the eighth day of its rally attempt. The Nasdaq composite confirmed a new uptrend on April 6 when it soared 7.3% in higher volume.
The stock market went into a correction on Sept. 23 after the S&P 500 flashed its eighth distribution day, falling 2.3% in higher volume. But it didn’t take the stock market long to recover. The Dow Jones Industrial Average flashed a follow-through day on Sept. 30, rising 1.2% in higher volume.
After a sharp pullback for the stock market in October, the S&P 500 followed through again on Nov. 4, rising 2.2% in higher volume.
The stock market uptrend came under pressure, hurt by six distribution days for the S&P 500 between Feb. 18 and March 4. But the stock market went back to a confirmed uptrend on March 16.
Through May 24, the uptrend was under some pressure, hurt by seven distribution days for the S&P 500 and five for the Nasdaq since April 20. When distribution days start to cluster, it can cause problems for an uptrend. But the stock market is back in a confirmed uptrend, with major stock indexes at or near new highs.
You can monitor the current stock market outlook and distribution day count every day in The Big Picture column. Read it daily for exclusive stock market analysis.
5 Top Tech Stocks
The best tech stocks to buy or watch now include Facebook (FB), Microsoft (MSFT), Roblox (RBLX), Applied Materials (AMAT) and Upwork (UPWK).
Why This IBD Tool Simplifies The Search For Top Stocks
The technology sector is loaded with stocks with outstanding fundamentals. Many sell at a hefty premium, but a high valuation is warranted due to strong growth prospects.
Finding The Best Tech Stocks To Buy Or Watch
Screening for the best tech stocks to buy or watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.
The best tech stocks to buy or watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.
Roblox, a Leaderboard stock, has been volatile since its March debut at 45. The stock opened at 64.50 and closed at 69.50 on its first day of trading.
Roblox cleared an IPO base with a 79.20 buy point on April 12, but sellers knocked the stock lower.
Roblox definitely has the “new” going for it in the CAN SLIM acronym, because sales growth has exploded in recent quarters thanks to a new service. The stock rose sharply on May 11 after Q1 sales accelerated nicely from Q4, up 140% to $387 million.
The company’s online gaming platform is popular with the younger crowd, who use the site to build, share and play video games. Last year, daily active users grew 85% to 32.6 million, nice acceleration from 47% growth in 2019. Paying users more than doubled to about 490,000.
In Q1, daily active users surged 79% from the year-ago quarter to 42.1 million. Users spent 9.7 billion hours on the platform, up 98%.
Roblox now shows three straight quarters of accelerating sales growth, from 68% to 92% to 110% to 140%.
Join IBD experts as they analyze actionable stocks in the coronavirus stock market rally on IBD Live
Roblox cleared an alternate entry of 83.51 on May 21 and crossed the 100 level in early June. But sellers knocked RBLX stock down to its 10-week line where the stock found support.
Composite Rating: 43
Latest-quarter EPS % change: (-0.24 vs. -0.14 cents)
Latest-quarter sales % change: 140%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax profit margin: n/a
After a modest pullback, Facebook was near a 304.77 entry ahead of its Q1 report after a breakout from a long consolidation.
But the stock gapped up over a 315.98 alternate entry on April 29 after the company reported a 93% jump in quarterly profit to $3.30 a share, with revenue up 48% to $26.2 billion. The results easily beat the Zacks consensus estimate of $2.36 EPS and revenue of $23.7 billion.
Revenue growth was driven by a 30% year-over-year increase in the average price per ad and a 12% increase in the number of ads delivered.
An Accumulation/Distribution Rating of B- indicates strong demand for shares in recent weeks.
Facebook reported 1.88 million daily active users in Q1, up 8% from the year-ago period but slightly below the FactSet consensus estimate of 1.89 billion. Monthly active users rose 10% to 2.85 billion, vs. estimates of 2.86 billion.
Daily active users in the U.S. and Canada remained flat at 195 million for the second consecutive quarter.
Facebook now has 3.45 billion monthly users across its family of apps, which also includes Instagram, Messenger and WhatsApp.
Facebook stock is extended at this point and too late to buy. Watch for another base to form or another successful test of its 10-week moving average.
Composite Rating: 99
Latest-quarter EPS % change: 93%
Latest-quarter sales % change: 48%
Three-year annualized EPS growth rate: 13%
Annual return on equity: 24.6%
Annual pretax margin: 38.6%
The Nasdaq 100 firm and IBD Long-Term Leader, gapped down on April 28 despite reporting its second straight quarter of accelerating sales growth. But MSFT stock just cleared a shallow cup base with a 263.29 buy point and is still in the 5% buy zone. The latest base comes after a breakout in early April from a flat base with a 246.23 buy point.
Earnings growth accelerated for the third straight quarter in late April, rising 39% to $1.95 a share. Revenue increased 19% to $41.7 billion. The Zacks consensus estimate was for adjusted profit of $1.76 a share on revenue of $40.94 billion.
Azure cloud revenue grew 50% year over year but was flat from the prior quarter.
The company’s Intelligent Cloud segment, which includes Azure, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Services, delivered $15.12 billion in revenue, up 23% year over year and above the FactSet consensus estimate of $14.92 billion.
Microsoft Productivity and Business Processes unit, which houses Office, Dynamics and LinkedIn, contributed $13.55 billion in revenue, up 15% and above the consensus estimate of $13.49 billion.
The company’s Teams business communication platform now boasts 145 million daily active users, up from 115 million in October.
Microsoft’s More Personal Computing unit, which includes Windows, gaming devices and search, posted revenue of $13.04 billion, up nearly 19% and above the $12.55 billion consensus.
The company recently announced plans to buy voice recognition and artificial intelligence firm Nuance Communications (NUAN) for $16 billion, excluding debt.
Composite Rating: 92
Latest-quarter EPS % change: 39%
Latest-quarter sales % change: 19%
Three-year annualized EPS growth rate: 24%
Annual return on equity: 40.1%
Annual pretax margin: 37.1%
Applied Materials Stock
The chip-equipment leader is forming a second-stage base after a breakout from a first-stage in early November. The latest base shows a support week at the bottom base. That’s when shares fell 6% during the week ended May 14, but the stock closed in the upper half of its weekly range. The buy point is 142.22, 10 cents above its June 1 intraday high.
The breakout in November came around the time the S&P 500 and Nasdaq composite confirmed new uptrends with follow-through days.
After three straight quarters of 20%+ revenue growth, growth accelerated in the latest quarter, up 41% to $5.6 billion Adjusted earnings in the company’s fiscal second quarter jumped 83% to a $1.63 a share. The results easily topped the Zacks consensus estimate of $1.51 a share and revenue of $5.39 billion.
The company generated $1.19 billion in cash from operations and returned $952 million to shareholders in the quarter, including $202 million in dividends and $750 million in share repurchases.
Applied Materials also raised guidance for the current quarter. It forecast adjusted earnings of $1.70 to $1.82 a share (est. $1.57) on sales of $5.72 billion to $6.12 billion (est. $5.55 billion).
Composite Rating: 97
Latest-quarter EPS % change: 83%
Latest-quarter sales % change: 41%
Three-year annualized EPS growth rate: 4%
Annual return on equity: 40.9%
Annual pretax margin: 25.3%
Upwork also has the “new” in CAN SLIM working in its favor. The company operates an online platform that connects freelancers with businesses. It was featured in IBD’s Stock Of The Day on June 22 due to compelling fundamentals and technicals.
The company reported first-quarter results on May 4. Revenue climbed 37% from the year-ago period to $113.6 million, marking the third straight quarter of accelerating revenue growth.
For the year, Upwork expects revenue in the range of $480 million to $490 million. Revenue in 2020 totaled $374 million.
Fund ownership has been accelerating in recent quarters. At the end of March, 429 funds had a position in the stock up sharply from 194 in the year-ago period.
Upwork broke out over a 51.84 handle buy point on June 22. It’s extended from that buy point now, but since UPWK stock is still below its all-time high of 63.88, it could start forming another handle which could present another entry.
Composite Rating: 96
Latest-quarter EPS % change: N/A
Latest-quarter sales % change: 37%
Three-year annualized EPS growth rate: n/a
Annual return on equity: 2.2%
Annual pretax margin: 1.7%
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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