So far this year, tech stocks have been the most stellar performers. The Nasdaq Composite has gained 14%, besting both the S&P 500 Index and Dow Jones Industrial Average. And that number comes despite a recent reversal: The Nasdaq hit an all-time high last Friday, then posted its biggest drop since February.
At this stage in the season, 99.6% of companies in the S&P 500 have released their first-quarter earnings. As we head into Q2, the estimated earnings growth is 6.6%, with most of the gains coming from energy.
Performance within the tech sector, though, is naturally quite varied. With three Big Tech names set to post earnings next week, let’s take a look at which are prepared to ride the sector’s overall momentum.
Earnings Reports to Watch: Adobe Systems (ADBE)
Software star Adobe Systems Incorporated (NASDAQ:ADBE) has gained a sweet 33% year-to-date and 41% over the last 12 months. That momentum could continue when the company reports earnings next week, too. Adobe is expected to post earnings of 95 cents per share — a 34% year-over-year gain — on the back of substantial revenue growth (24%).
That estimate is also four pennies higher than where it stood three months ago — a very optimistic indicator. Toss in a streak of earnings beats, and there are plenty of reasons to feel good heading into the report.
The main red flag I see pertains to a longer time horizon than next week’s report. Right now, Adobe stock is trading for 28 times forward earnings — more than double the company’s long-term expected growth rate. Adobe Systems seems on pace to prove its worth a premium this quarter — but it will have to keep clearing a high bar to prevent investors from taking their profits and hitting the road.
Earnings Reports to Watch: Oracle (ORCL)
Tech behemoth Oracle Corporation (NYSE:ORCL) has been chugging slowly higher of late, gaining 16% over the last year. While that’s not too shabby for the legacy business, which also offers investors a 1.7% dividend yield, it’s far shy of the broader sector. The Nasdaq’s gains over the last year are just shy of 30%.
When Oracle reports quarterly results next week, the company is expected to show earnings of 78 cents per share — 3 pennies lower than a year ago– on a slight decline in sales. The company did recently enjoy an upgrade from Wedbush, which raised its quarterly estimates and upped its price target by a dollar.
But Oracle has little growth on tap and yet is trading for 16 times forward earnings and nearly 5 times sales. With that in mind, the slightest whiff could spark a selloff.
Earnings Reports to Watch: BlackBerry (BBRY)
BlackBerry Ltd (NASDAQ:BBRY) was once the hottest name in the smartphone game. But as Apple Inc. (NASDAQ:AAPL) took over that world, the company instead became the laughing stock of Wall Street. Lately, though, BBRY has been moving away from the hardware world and is instead looking to become a software company.
Right now, shares of the stock remain far off their 2013 peak but have been regaining ground. Indeed, BlackBerry stock boasts gains over 53% over the last 12 months — and some analysts see significantly more upside thanks to BBRY’s focus on computer systems that run in cars.
When BlackBerry reports earnings next week, analysts still expect a 40% year-over-year decline in revenue and anywhere between a loss of 2 cents and a profit of 4 cents for the bottom line. But earnings are all about expectations, and the company has met or exceeded expectations in each of the last four quarters.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.