The Nasdaq and the S&P 500 both surged to new highs again on Wednesday, with Netflix NFLX, Salesforce CRM, Adobe ADBE, and other big tech names leading the charge. The technology sector march continues as Wall Street pours into stocks that prove they can grow during the tough and unprecedented economic environment.
The S&P 500 is now up nearly 55% from the market’s lows and around 7% in 2020. This fact makes some people nervous, as the disconnect between Wall Street and Main Street widens.
However, investors must always remember that Wall Street is a forward-looking world, which means that it was already peering beyond the lockdowns to a recovery back in April. And the economic outlook has improved since then.
In fact, positive signs of recovery keep rolling in, from existing U.S. home sales to solid PMI data. On top of that, second quarter earnings results came in better than expected and the third quarter outlook is improving.
It’s also worth hammering home the point that not all stocks have roared back. Stocks within industries that remain directly harmed by the coronavirus such as energy and travel & leisure remain well below their pre-COVID highs.
This highlights the market’s prudence as it is not buying everything. Instead, investors are making more rational moves into companies that are able to grow both their top and bottom lines during the height of a global pandemic.
Clearly, markets don’t just go up forever without some corrections and a pullback is always in play. Uncertainty also remains regarding the virus, the upcoming U.S. election, and trade. Luckily for investors, massive monetary and fiscal stimulus is helping support the equities market.
Therefore, with interest rates set to remain historically low for at least the near future, stocks offer some of the best options for returns. All that said, here are three tech stocks with strong growth outlooks that appear worth considering at the moment…
Datadog DDOG
Datadog is a cloud software firm that enables its clients to monitor the performance of databases, servers, apps, networks, and more. DDOG, which went public last September, topped our Q2 earnings estimate on August 6. The firm’s second quarter sales jumped 68% and its large customers ($100k+ in annual recurring revenue) surged from 594 in the year-ago period to over 1,000.
Investors should also note that DDOG launched its Security Monitoring offering earlier this year and it announced earlier this month that it acquired Undefined Labs, which is “a testing and observability company for developer workflows.”
DDOG shares have climbed 160% since the market’s lows and 140% since its IPO. Despite the run, the stock sits about 13% off its early August highs, after suffering from a post-earnings pullback—which it’s already bouncing back from. Datadog’s earnings trends have jumped since its report to help it earn a Zacks Rank #2 (Buy) right now, alongside its “A” grade for Momentum in our Style Scores system.
Looking ahead, our Zacks estimates call for its Q3 revenue to jump over 50%, with its full-year sales projected to surge 57% in 2020 and another 35% in FY21. On top of that, DDOG is expected to swing from an adjusted loss of -$0.01 per share all the way to +$0.13 in fiscal 2020.
Zoom Video ZM
All of the talk that started months ago about ZM shares being overheated remains noise at this point, as Wall Street continues to show its love for the cloud-based video conferencing firm. Zoom remains one of the real breakout stocks of 2020, driven by its ability to provide a vital service during the coronavirus pandemic.
ZM makes its money from paying business customers, who were using its offerings non-stop in the current remote work environment that could be here for a long time—especially in big cities with public transportation. More importantly, companies that find the work-from-home world relativity seamless might permanently cut back on rent and commercial real estate expenses.
Meanwhile, Zoom offers firms the chance to scale down travel, which the pandemic could normalize for the long haul. This also has potentially positive environmental impacts that companies might take advantage of for various reasons.
ZM crushed our Q1 estimate in early June and wowed Wall Street with its ability to add paying business customers. Zoom is a Zacks Rank #2 (Buy) heading into its Q2 earnings release on August 31, and its shares reached new highs again on Wednesday. Our Zacks estimates call for Zoom’s adjusted quarterly earnings to skyrocket 463% on 242% stronger revenue.
Etsy ETSY
Etsy has carved out a nice niche within the booming e-commerce world as a digital craft fair that allows people and small businesses to sell clothing, art, home décor, and much more. The Brooklyn-based firm was growing at a solid pace and then the coronavirus helped send it soaring. ETSY stock is up 285% since the market’s lows to crush Amazon AMZN, eBay EBAY, and Shopify SHOP. This is part of a 700% climb during the past three years.
Etsy’s annual sales climbed by 36% in both 2019 and 2018, with its Q1 FY20 revenue up 35%. Then its Q2 sales skyrocketed 137%. It’s worth noting that some on Wall Street focused on Etsy’s mask sales, which will hopefully end sometime soon. But its non-mask sales still surged 93%. Meanwhile, active sellers jumped 35%, with buyers up 41%. Etsy’s positive earnings revisions trend earn it a Zacks Rank #1 (Strong Buy) at the moment, next to its “A” grades for Growth and Momentum.
Peeking ahead, our estimates call for its Q3 revenue to jump 108%, with Q4 projected to come 65% higher. Etsy’s adjusted earnings are expected to climb 375% in Q3 and 104% in the fourth quarter. On top of its growth outlook, ETSY has cooled off a bit recently, which might create a better buying opportunity.
Etsy is also a pure-play investment in the e-commerce market that’s only going to expand from its 16% share of total U.S. retail sales in Q2—up from 10.8% in Q2 FY19. And at around $127 per share, Etsy stands out against Shopify’s $1,090 and AMZN’s $3,441.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
eBay Inc. (EBAY): Free Stock Analysis Report
Adobe Systems Incorporated (ADBE): Free Stock Analysis Report
salesforce.com, inc. (CRM): Free Stock Analysis Report
Netflix, Inc. (NFLX): Free Stock Analysis Report
Etsy, Inc. (ETSY): Free Stock Analysis Report
Shopify Inc. (SHOP): Free Stock Analysis Report
Zoom Video Communications, Inc. (ZM): Free Stock Analysis Report
Datadog, Inc. (DDOG): Free Stock Analysis Report
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