The best tech stocks to buy or watch aren’t hard to find, as long as you’re fishing in the right pond. Whether it’s a widely held name like Shopify stock or a lesser-known name like Etsy stock, the best tech stocks share many common traits.
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The best tech stocks boast strong fundamentals along with leading price performance in their industry groups. Many also show favorable fund ownership trends.
Fishing in the right pond means targeting top stocks showing resilience and holding near highs. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.
Stock Market Health
The S&P 500 flashed a sign of strength on April 2. It soared 2.3% in higher volume, confirming a new uptrend on the eighth day of its rally attempt. The Nasdaq composite confirmed a new uptrend on April 6 when it soared 7.3% in higher volume.
The stock market went into a correction on Sept.23 after the S&P 500 flashed its eighth distribution day, falling 2.3% in higher volume. But it didn’t take the stock market to recover. The Dow Jones Industrial Average flashed a follow-through day on Sept. 30, rising 1.2% in higher volume.
After a sharp pullback for the stock market in October, the S&P 500 followed through again on Nov. 4, rising 2.2% in higher volume.
You can monitor the distribution day count every day in The Big Picture column. Read it every day for exclusive stock market analysis.
The coronavirus stock market crash resulted in a lot of broken stock charts. Some growth stocks have come under selling pressure, but there’s still a fair supply of bullish stock charts out there.
The best tech stocks to buy or watch now include Shopify (SHOP), CrowdStrike (CRWD), Veeva Systems (VEEV), Qorvo (QRVO) and Pinduoduo (PDD). The common bond among all five stocks? Bullish relative strength lines and high Composite Ratings from IBD.
The technology sector is loaded with stocks with outstanding fundamentals. Many sell at a hefty premium, but a high valuation is warranted due to strong growth prospects. Leadership is broad-based in the technology sector, which means it has a good chance of maintaining its market leadership.
Finding The Best Tech Stocks To Buy Or Watch
Screening for the best tech stocks to buy or watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.
The best tech stocks to buy or watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.
Shopify Stock
E-commerce sales have been booming during the coronavirus pandemic, and that’s been good news for Shopify which operates a cloud-based commerce platform designed for small and medium-sized businesses.
If you thought Shopify’s run was over when it corrected 49% off it high in March, you weren’t alone. But it didn’t take long for Shopify to find its footing. Shopify quickly built the right side of a cup base in April and broke out during the week ended April 24. It touched a high of 11,46.91 in early September before settling into a new consolidation.
In its latest reported quarter, adjusted profit of $1.13 a share more than doubled expectations. Revenue soared 96% to $767.4 million. Gross merchandise volume jumped 109% to $30.9 billion.
“The accelerated shift to digital commerce triggered by Covid-19 is continuing, as more consumers shop online and entrepreneurs step up to meet demand,” Shopify President Harley Finkelstein said in a statement.
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Shopify is past the 5% buy zone after a Dec. 16 breakout over the 1,112.51 buy point. But it’s common for leading growth stocks to pull back to buy points. If Shopify pulls back in light volume and finds support at its 10-day moving average, the stock would be actionable again.
Composite Rating: 98 (scale of 1-99 with 99 being the best)
Latest-quarter EPS % change: n/a
Latest-quarter sales % change: +96%
Three-year annualized EPS growth rate: 101%
Annual return on equity: 1.3%
Annual pretax profit margin: 5.8%
Qorvo Stock
The wireless chipmaker wireless has benefitted from the launch of Apple‘s (AAPL) iPhone 12 and other 5G smartphones.
One of the top performers in IBD’s chipmaker group, Qorvo is holding gains nicely after gapping over a 140.79 buy point on Nov. 5. Tight trading from there resulted in a three-weeks-tight pattern with an alternate entry of 154.53. The pattern is a way a stock shows strength after a breakout. It’s best used to add shares to a current position. Qorvo topped that entry on Nov. 30.
The company on Nov. 4 reported a 60% rise in quarterly profit. Sales increased 31% to $1.06 billion.
Qorvo hasn’t tested its 10-week moving average yet after the initial breakout. If it pulls back and finds support at the line, Qorvo will be in an alternate buy zone. Another interpretation is that Qorvo is forming an ascending base with a 171 entry.
Composite Rating: 97
Latest-quarter EPS % change: 60%
Latest-quarter sales % change: +31%
Three-year annualized EPS growth rate:13%
Annual return on equity: 17.4%
Annual pretax margin: 25%
Veeva Systems Stock
The company provides cloud-based software for the life sciences industry.
It’s hard to find a company with a more consistent track record of growth than Veeva. The company on Dec. 1 reported a 30% increased in adjusted profit, with revenue up 34% to $377.5 million. Subscription services revenue totaled $302.9 million, up 34%.
“Our customers are delivering innovations that will have positive, lasting impacts on human health,” said CEO Peter Gassner in the Q3 press release. “We are proud to work with these amazing companies, providing solutions that streamline drug development and enable them to support healthcare providers on the front lines.”
While a large number of growth stocks have been breaking out to new highs, Veeva System is still building a base. But the base has positive qualities, including a support week during the week ended December 4. Shares fell 1.7% that week in heavy volume, but Veeva stock rallied off lows and closed in the upper half of its range. Even though the stock closed lower for the week, buyers helped lift the stock off lows.
The buy point for now is 314.09, but an earlier entry could be seen if Veeva forms a handle.
Composite Rating: 90
Latest-quarter EPS % change: 30%
Latest-quarter sales % change: +34%
Three-year annualized EPS growth rate: 46%
Annual return on equity: 23.9%
Annual pretax margin: 39.8%
Pinduoduo Stock
Bad news for Alibaba Friday was good news for Pinduoduo as shares jumped nearly 9% in higher volume.
The company, with a market capitalization of around $180 billion, operates an e-commerce platform in China.
The company’s e-commerce model combines social networking with group shopping. Pinduoduo runs the third-largest e-commerce platform in China by gross merchandise volume, behind Alibaba Group (BABA) and JD.com (JD).
Regulatory concerns have hit many Chinese stocks, but Pinduoduo continues to hold gains nicely after gapping up on earnings in November. Watch for a first test of the 10-week line, currently around 132. A conviction bounce off the line would put PDD stock in an alternate buy zone.
The company on Nov. 12 reported adjusted profit of 5 cents a share. Revenue jumped 99% to $2.o9 billion. The company counted 643.4 million monthly average users during the quarter, up 50% from the year-ago period.
Composite Rating: 94
Latest-quarter EPS % change: n/a
Latest-quarter sales % change: +99%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax margin: n/a
CrowdStrike Stock
The large-cap stock is one of several leaders in the security software group, along with Palo Alto Networks (PANW), Zscaler (ZS), SailPoint Technologies (SAIL) and others.
CrowdStrike, a Leaderboard stock, gapped up on Dec. 3 after reporting earnings. It also triggered the eight-week hold rule because the gain from the 154 buy point hit 20% in less than three weeks.
CrowdStrike, a provider of cloud-based endpoint protection, just turned profitable. For its current fiscal year 2021, annual profit is expected to come in at 22 cents a share. Growth is expected to accelerate sharply in 2022, up 45% to 32 cents.
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Fund sponsorship has been rising sharply in recent quarters. At the end of September, 945 funds owned shares, up sharply from 203 at the end of 2019.
Composite Rating: 98
Latest-quarter EPS % change: n/a
Latest-quarter sales % change: 86%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax margin: n/a
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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