3 Tech Stocks to Watch This Week — MSFT QCOM TXN

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The markets just can’t seem to catch a break — and that may mean bad news ahead for the typically choppy technology sector.

3 Tech Stocks To Watch This Week -- MSFT QCOM TXN
Source: Zoom by Jean Sander

After the Dow Jones Industrial Average scored a respectable 211 points to close the final session of last week, it ended up returning virtually all those gains the following Monday. At the same time, the benchmark exchange-traded fund for tech stocks — Technology SPDR ETF (XLK) — fell 1%, bringing its year-to-date tally to more than -6%.

Curiously, the Chicago Board Options Exchange Volatility Index — more popularly known as the VIX — has failed to broach the lofty levels seen in last August’s broad market correction. Even more conspicuous is the sentiment towards tech stocks, which mathematically has seen a substantial decline in implied volatility.

But according to financial experts, this should not be taken necessarily as a positive sign. Badly burned traders are waiting for hard signals that it’s safe to jump back into the markets. That means higher implied volatility levels for both blue-chip indices and tech stocks.

The cautionary note surrounding tech stocks isn’t just limited to obscure technical factors. Indeed, the more convincing argument rests within the changing fundamentals of the industry itself, which is rapidly shifting towards cloud computing. While innovation is universally admired, it does have a cost. For tech stocks, that could mean the forced closures of unprofitable business units, leading to a shrinking corporate footprint as well as payroll.

One thing is clear — no sector has escaped unscathed from the poor start to the markets this year. With tech stocks having a reputation for volatility, it pays for investors to be extra careful when the following three industry giants release their earnings results later this week.

Tech Stocks to Watch: Microsoft Corporation (MSFT)

MSFT stock, technical analysis
Source: Source: JYE Financial, unless otherwise indicated

If the latest rumors are true, Microsoft Corporation (MSFT) is brimming with confidence. After decades of operating in relative obscurity, MSFT chief executive officer Satya Nadella is bringing its research division out of the Stone Age. Rather than harnessing technology for technology’s sake, Nadella is focusing on solutions that consumers will find useful, and thereby profitable for MSFT’s bottom line. It’s an ambitious and arguably necessary goal given the cutthroat nature of tech stocks.

This will certainly be a much-anticipated earnings report when MSFT releases their results for the second quarter of fiscal year 2016 on Thursday. Wall Street forecasts earnings per share to come in at 71 cents, unchanged from the year-ago quarter. Due to the modest bump in profitability margins, MSFT in theory should be able to at least match expectations.

However, an earnings beat is by no means a foregone conclusion. Competitor Intel Corporation (INTC), despite exceeding expectations for its own earnings report, issued a warning about slowing Chinese markets having a direct impact on personal computer sales. That follows a four-year period in which PCs have largely been trumped by tablets and other mobile devices.

Since Windows programs are among the bread and butter of MSFT, anything that negatively affects PC sales could boomerang unfavorably for the tech giant.

Despite MSFT’s strong performances over the past few years, 2016 might turn out to be a different animal — investors may want to tread carefully.

Tech Stocks to Watch: Qualcomm, Inc. (QCOM)

QCOM stock, technical analysis
Source: Source: JYE Financial, unless otherwise indicated

You have to give them credit for not going down without a fight. Qualcomm, Inc. (QCOM), which has been struggling under the weight of a year-and-a-half-long bearish trend channel, is eyeing China as the catalyst for a potential turnaround. The Asian giant has the fastest-growing market of data-center devices according to a Bloomberg report, and QCOM desperately wants in. They will, however, face an inordinate challenge from Intel, which maintains a near-monopoly of market share.

If it sounds like a David and Goliath mismatch, you’re not alone. Such is the state of affairs at QCOM that Wall Street severely downgraded their expectations for the company’s Q1 FY2016 earnings target to 90 cents from the year-ago consensus of $1.25. Revenue is forecast to hit between $5.1 billion at the low end of the range to $6 billion at the top — well below the $7.1 billion achieved in Q1 of the prior year.

Even if QCOM were to positively surprise analysts, it will still have to convince jittery investors that the worst of the ride is over. That may be the biggest challenge of all. Over the trailing year, QCOM has lost 34% of value in the markets — by far the worst such statistic among the tech stocks covered here. In addition, during the past decade, QCOM has gained a mere 1%.

A lot can change in a heartbeat with tech stocks, but for QCOM, there’s likely still downside risk that needs to be worked out.

Tech Stocks to Watch: Texas Instruments Incorporated (TXN)

TXN stock, technical analysis
Source: Source: JYE Financial, unless otherwise indicated

Renowned semiconductor company Texas Instruments Incorporated (TXN) has been a bit of a head-case in recent trades.

The markets collapsed TXN’s valuation beginning in the early spring of 2015, only to see it rise sharply in the final quarter of the year. Any assumptions that the company will carry the momentum into 2016 quickly died when TXN again dropped like a rock — partly due to the failed takeover bid of rival chipmaker Maxim Integrated Products Inc. (MXIM).

Which Texas Instruments will decide to show up when it releases Q4 FY2015 earnings results this Wednesday?

For its part, Wall Street isn’t expecting too much. EPS consensus target is 69 cents, unchanged from the year-ago estimate. However, the revenue forecast is down slightly to $3.2 billion from $3.3 billion. Should TXN meet those targets, sales for 2015 would come in just under the prior year’s results. This would do nothing more than to exacerbate the already disappointing sales trend over the past several years.

Further, it calls into question the quality of TXN’s earnings — how much more growth can they expect by simply trimming excess fat?

Investors will warily note the technical gyrations of TXN. A good chunk of the 30%-plus move last year between late August and December has vanished in less than two months.

TXN is currently positioned in a no-man’s-land, particularly because the Asian markets just can’t find stable ground. Without their support, it will be difficult to justify the exposure risk to tech stocks, given how important the region is to the industry.

When it comes down to it, TXN is a solid company trapped in an unfortunate circumstance — look for some weakness in the nearer-term before engaging this opportunity.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/3-tech-stocks-to-watch-msft-qcom-txn/.

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