On Aug. 30, the Technology Select Sector SPDR ETF (NYSEARCA:XLK) hit its peak at $159.89. The ETF then proceeded to fall 7% through Oct. 3 as volatility hung over the markets due to a host of investor concerns and rising yields. But tech stocks have rebounded since then, almost reaching their peak.
Since then, the XLK is up 7%, compared to the S&P 500’s gain of 5%.
This has lifted the names and fortunes of many tech companies, as bargain hunters have been buying on the dip. Many of these companies are in a bullish trend and showing positive momentum. But the question is, how long this will last?
One way to see if this momentum will continue is to use the Momentum Grade in StockNews.com’s POWR Ratings system. If a stock has a buy rating or higher and a Momentum Grade of A or B, there is a good chance the momentum will last. That’s because our Momentum Grade doesn’t just look at current momentum; it analyzes a stock’s ability to outperform going forward.
Looking at those grades, investors should consider adding one of these three tech stocks to their portfolios:
Tech Stocks: Applied Materials Inc. (AMAT)
The first of today’s tech stocks, AMAT, is one of the world’s largest suppliers of semiconductor manufacturing equipment, providing materials engineering solutions to help make nearly every chip in the world. The firm’s systems are used in almost every major process step. Tools are used in chemical and physical vapor deposition, etching, chemical mechanical polishing, and defect-inspection scanning electron microscopes.
The company is benefiting from momentum across its semiconductor systems and applied global services segments. AMAT also sees strong demand for silicon in various applications across several markets.
The firm is well-positioned in etch and CVD and is optimistic about the increase in foundry spending. NAND is also gaining due to its increasing application in cloud computing and potential in mobile.
For instance, the emergence of data centers should be a solid contributor to AMTA’s sales growth due to the increasing demand for DRAM by cloud service providers. The company has also been having success in expanding beyond semiconductors. For instance, AMAT is poised to take advantage of the transition from LCD to OLED technology.
The company has an overall grade of B, which translates into a “buy” rating in our POWR Ratings system. AMAT has a Momentum Grade of B, which isn’t surprising as the stock is up 55% for the year. This momentum is expected to continue due to increasing demand for its offerings.
The company also has a Quality Grade of B due to solid fundamentals. For instance, AMAT had $6.5 billion in cash on hand at the end of the most recent quarter. This compares favorably to no short-term debt. We also provide Growth, Value, Stability, and Sentiment Grades for AMAT, which you can find here.
AMAT is ranked No. 34 in the B-rated Semiconductor & Wireless Chip industry. For more top stocks in this highly rated industry, click here.
KLA Corporation (KLAC)
KLAC designs and manufactures yield-management and process-monitoring diagnostic and control systems for the semiconductor industry. The systems are used to analyze the manufacturing process at various steps in a product’s development. The firm’s laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring.
The company also provides inspection tools and systems for optical metrology and e-beam metrology. KLAC has been gaining momentum in the process control market. Plus, a rise in spending by its customers is helping to drive the firm’s growth in the Foundry-Logic market.
KLAC is also benefiting from enhanced wafer cleanliness in the bare wafer market, which is driving demand for its wafer products.
The firm also benefits from technology transitions. This occurs when companies need to extend capacity and tooling through new processes and technologies, resulting in yield management solutions. Technology transitions in 3D NAND, FinFET, TSV, and multi-patterning should drive demand for the company in upcoming quarters.
KLAC has an overall grade of B and a “buy” rating in our POWR Ratings system. The company has a Momentum Grade of B, as the company is up 28% for the year. KLAC also has a Quality Grade of A due to a rock-solid balance sheet. Its current ratio of 2.7 indicates it has more than enough liquidity to handle short-term obligations.
To access KLAC’s other grades (Growth, Value, Stability, and Sentiment), click here. KLAC is ranked No. 23 in the Semiconductor & Wireless Chip industry.
Tech Stocks: Amdocs Limited (DOX)
DOX provides software and services to communications, cable and satellite, entertainment, and media industry service providers. It develops, markets, supports, implements, and operates its open and modular cloud offering. The company offers business support systems, operational support systems, and managed services.
The company also develops software for mobile financial services and advertising and media solutions. DOX is undoubtedly benefiting from acquisitions that have complemented its original business. So far, the company has made 21 acquisitions to increase its product portfolio and expand its geographic footprint. For instance, it recently bought Sourced Group, a technology consultancy firm.
This acquisition strengthened DOX’s capabilities to aid in the cloud transformation of its service provider customers. DOX has also expanded its global client base by signing long-term contracts with major telecom companies. Last year, DOX had a 12-month backlog of $3.6 billion due to projects with companies such as Comcast (NASDAQ:CMCSA), T-Mobile (NASADQ:TMUS), and DISH (NASDAQ:DISH). Plus, its Network Function Virtualization area is also aiding growth.
DOX has an overall grade of B, translating into a “buy” rating in our POWR Ratings system. The company has a Value Grade of B, which makes sense with a forward P/E of 14.77. DOX also has a Momentum Grade of B, as its stock is up 41% over the past year and has shown bullish momentum over the mid and short term.
To access all of DOX’s grades, including Growth, Stability, Sentiment, and Quality, click here. DOX is ranked No. 4 in the Software – Business industry. For more top-ranked stocks in this industry, click here.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
If you would like to see more of his best value stock ideas, then click the link below.
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On the date of publication, David Cohne did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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