3 Hot Tech Stocks
The later half of the first quarter of 2014 saw investors dumping high flying momentum stocks like Twitter (NYSE:TWTR) on lofty valuations that lacked fundamental support. The sell-off has forced investors to look for quality tech names with a strong business model.
Improving fundamental trends for stocks that cater to growing sectors such as mobile, social networking and Big Data analytics are also attractive in the current scenario. However, the presence of a large number of players makes it difficult to pick sure-shot winners.
In fundamental analysis, EPS is one of the leading indicators that help investors to select the right scrip. By using the Zacks proprietary methodology, investors can select stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
Zacks Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Here are 3 stocks that meet both the criteria:
Procera Networks (PKT.O) – This Zacks Ranked #3 company carries an Earnings ESP of +21.05%. The company plans to announce first-quarter 2014 results on May 1. This Internet intelligence software developer has outperformed the Zacks Consensus Estimate in three of the preceding four quarters with an average positive surprise of 23.23%.
Ranked among the top 10 fastest-growing network companies by Deloitte, Procera is expected to benefit from its strong pipeline of products, new program wins from Tier 1 operators, growing international customer base and increasing global mobile market share. Despite a seasonally weak first quarter, these factors will drive profitability.
Although continuing investments on product development will hurt profitability, strong demand for Intelligent Policy Enforcement (IPE) products, higher revenue contribution from the Vineyard acquisition and higher recurring support revenues will drive overall growth in 2014.
Synaptics Inc. (SYNA.O) – This Zacks Rank #3 company carries an Earnings ESP of +10.26%. The company plans to announce the third-quarter 2014 results on Apr 24. This human interface solutions developer has outperformed the Zacks Consensus Estimate in three of the trailing four quarters with an average positive surprise of 19.54%.
Synaptics’ dominant position in the touch-based interface market is a major growth factor. The company continues to win new programs from global original equipment manufacturers like Intel (NASDAQ:INTC), Dell, Samsung (SSNLF), LG, Sony (NYSE:SNE), Lenovo Group (LNVGF.PK), Microsoft (MSFT) and Nokia (NYSE:NOK).
Although slowing growth in the high-end smartphone market and intensifying competition are headwinds, Synaptics’ innovative technology pipeline is a major positive in this regard. The acquisition of fingerprint sensors developer, Validity, and ultra-thin keyboard maker, Pacinian, will increase its total addressable market. The Validity take-over will boost its position in the fast growing biometrics market.
The Ultimate Software Group (ULTI.O) - This Zacks Rank #3 company carries an Earnings ESP of +4.76%. The company plans to announce the first-quarter 2014 results on Apr 29. This cloud-based human capital management (HCM) solution provider has beaten the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 25.08%.
Higher recurring revenues (82.0% of 2013 revenues) and increasing customer retention rate are the primary growth drivers. Improving overall employment trend will also drive the top line in the near term.
Ultimate Software is expected to continue to add new customers, especially small and medium businesses, with employee strength of approximately 500 to 1500. This, along with new products, will further drive growth in 2014.
Conclusion
Due to growing fundamental concerns, we believe that investors will flock to tech stocks that have higher near-term visibility and strong long-term growth prospects for the rest of 2014.