5 Tech Stocks to Buy as Sector Rallies Strongly

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by Swarup Gupta

After riding high on a spectacular Apple Inc. (AAPL – Analyst Report) -fueled rally, tech stocks declined on Friday. However, this was a departure from the trend of strong gains that the sector has been enjoying during the current quarter. Concerns about the valuation of defensive stocks have led to a movement into more aggressive options over this period.

Safer options have also lost their luster given the optimism about a rebounding economic growth and increasing chances of a rate hike. Given the current market situation, such gains are likely to continue by and large going forward. This is why it makes sense to opt for tech stocks at this point.

Apple Gains on iPhone 7 Launch

News that the first set of iPhone 7 were sold out globally helped Apple’s shares jump 3.4% to $115.57 on Thursday, its highest close since December. The iPhone maker registered its first four-day winning streak with successive gains of more than 2% since Apr 2009. The broader Technology Select Sector SPDR  gained 1.6%, the highest among the S&P 500 sectors.

Shares of the iPhone maker slipped marginally on Friday, losing 0.1%. However, it still managed to register its sharpest product launch related gains since 2011. Over the week, the stock managed to gain 11.4%. These were its largest weekly gains since Oct 2011.

Tech Gains from Sharp Rotation

Cyclical and relatively less popular categories, such as technology and finance, have recently found favor with the markets once again. One of the reasons behind this is heightened concerns about the valuation of traditionally defensive sectors such as telecom and utility.

These sectors had become popular at the beginning of the year following fears over the global growth outlook. Consequently, shares of telecom and utilities companies had gained more than 20% up to August. However, these sectors have lost more than 7% and 5%, respectively since the beginning of August.

Growing signs of an imminent rate hike and indications of a domestic economic recovery are among the other reasons for the renewed popularity of more aggressive options. Taken together, these factors have led to a rotation into traditionally riskier but currently more reasonably priced options.

Our Choices

Fears about the valuation about traditionally defensive options have led to the renewed popularity of tech and finance stocks. Indications of a rate hike later this year and a pickup in economic growth have also powered gains for these stocks.

Tech stocks have also received impetus from recent Apple fueled gains. Picking stocks from this sector looks like a good option at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Itron, Inc. (ITRIAnalyst Report) is one of the leading global suppliers of a wide range of standard, advanced, and smart meters and meter communication systems, including networks and communication modules, software and services

Itron has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 9.8% over the last 30 days.

Stoneridge Inc. (SRISnapshot Report) is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty truck, and agricultural vehicle markets

Stoneridge has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 45.9% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 13.50, lower than the industry average of 16.52.

TTM Technologies Inc. (TTMISnapshot Report) provides time-critical, one-stop manufacturing services for highly complex printed circuit boards.

TTM Technologies has VGM Score of A. The company has expected earnings growth of more than 100% for the current year. It has a P/E (F1) of 10.56, which is lower than the industry average of 16.52. The stock has a Zacks Rank #1.

Vishay Intertechnology, Inc. (VSHSnapshot Report) is a leading international manufacturer and supplier of discrete passive electronic components and discrete active electronic components, particularly resistors, capacitors, inductors, diodes and transistors.

Vishay Intertechnology has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 23.6% for the current year. It has a P/E (F1) of 15.51, which is lower than the industry average of 15.82      .

Alpha & Omega Semiconductor, Ltd. (AOSLSnapshot Report) is engaged in designing, developing and supplying a broad range of power semiconductors globally.

Alpha & Omega Semiconductor has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year.