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 Dynatrace 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 2020 stock market rally started with a follow-through day for the S&P 500 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.
But the stock market uptrend has come under pressure again, hurt by six distribution days for the S&P 500 between Feb. 18 and Mar. 4.
You can monitor the distribution day count every day in The Big Picture column. Read it every day for exclusive stock market analysis.
To be sure, the coronavirus stock market crash last year resulted in a lot of broken stock charts. But new leaders emerged, and there’s still a fair supply of bullish stock charts out there.
Five Top Tech Stocks
The best tech stocks to buy or watch now include Axonics Modulation (AXNX), Palo Alto Networks (PANW), Shopify (SHOP), PayPal (PYPL) and Dynatrace (DT).
Why This IBD Tool Simplifies The Search For Top Stocks
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.
While several growth stocks have corrected 40% or more off their recent highs, the pullbacks for Palo Alto Networks, Shopify and PayPal have been contained so far. PayPal is a Leaderboard stock.
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.
Axonics Modulation
Amid a sell-off in technology stocks, Axonics Modulation is holding its own with a relative strength line near new high ground. It’s toying with a breakout from a an early-stage base with a 58.87 buy point.
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Axonics is a provider of sacral neuromodulation (SNM) solutions, used to treat patients with overactive bladder, fecal incontinence, and urinary retention. SNM delivers delivers mild electrical pulses to the sacral nerve to restore normal communication to and from the brain to reduce symptoms.
It’s a small-cap stock with a market capitalization of nearly $2.5 billion, but it’s fairly liquid with an averaged daily dollar volume of around $33 million.
Axonics isn’t profitable yet, but fund ownership has been rising in recent quarters. Increasing fund ownership was seen in several past stock market winners before big price moves.
Composite Rating: 70 (scale of 1-99 with 99 being the best)
Latest-quarter EPS % change: (-0.29) vs. (0.75%
Latest-quarter sales % change: +250%
Three-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Annual pretax profit margin: n/a
Shopify Stock
Shopify closed off lows on Feb. 17 after the company reported earnings and said it expects strong revenue growth in 2021 but at a slower growth rate than 2020. Last year, Shopify delivered sales of of $2.9 billion, up 86% from 2019.
Shopify stock was a big winner in 2020, up nearly 300% compared to a gain of 44% for the Nasdaq composite. The coronavirus pandemic has fueled big business for e-commerce firms of all sizes, which has resulted in big business for Shopify as more and small businesses go digital.
The company, with a market capitalization of nearly $160 billion, provides a cloud-based commerce platform for small- and medium-sized businesses.
Shopify reported a 267% surge in Q4 profit, with sales up 94% to $977.7 million. The results were well ahead of estimates.
Gross merchandise volume totaled $41.1 billion, up 99%, but that was a slowdown from 109% growth in Q3 and 119% growth in Q2.
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Chart-wise, Shopify is holding support at its 200-day moving average, which corresponds close to the 1,000 price level. Watch for Shopify to start forming the right side of a base.
The highly-regarded Fidelity Contrafund (FCNTX) has been increasing its position in recent quarters.
Composite Rating: 77
Latest-quarter EPS % change: +267%
Latest-quarter sales % change: +94%
Three-year annualized EPS growth rate: 101%
Annual return on equity: n/a
Annual pretax margin: n/a
PayPal Stock
PayPal recently introduced the ability to buy, hold and sell select cryptocurrencies like Bitcoin, Ethereum, Bitcoin Cash and Litecoin directly within the PayPal digital wallet.
The digital payments firm has been able to maintain strong earnings and sales even with a market capitalization of north of $250 billion. Full-year profit is expected to rise 18% in 2021 and 26% in 2022.
The company reported strong Q4 results on Feb. 3, with adjusted profit up 30% to $1.08 share. Revenue increased 23% to just over $6.1 billion. Total payment volume swelled to $277 billion, up 39%, as the coronavirus pandemic sparked more online transactions.
The company ended 2020 with 377 million active users and expects to add another 50 million in 2021.
PayPal gave a buy signal when it bounced off its 10-week line during the week ended Feb. 5. But like many other growth stocks, PayPal looks like it’s ready to form a new base.
Composite Rating: 82
Latest-quarter EPS % change: 30%
Latest-quarter sales % change: +23%
Three-year annualized EPS growth rate: +25%
Annual return on equity: 25%
Annual pretax margin: 25.6%
Dynatrace Stock
One of the few stocks left standing in the enterprise software group, Dynatrace continues to hold support at the 50-day moving average. Technically, it’s in a buy zone now.
The company’s software helps customers modernize and automate information technology operations.
Dynatrace gapped out of a 22-week consolidation in early February on strong earnings.
Composite Rating: 92
Latest-quarter EPS % change: 70%
Latest-quarter sales % change: +28%
Three-year annualized EPS growth rate: 117%
Annual return on equity: 29.3%
Annual pretax margin: 16.6%
Palo Alto Networks
The large-cap stock is one of many stocks in the security software group with strong fundamentals. Others include CrowdStrike (CRWD), Zscaler (HP), SailPoint Technologies (SAIL) and Fortinet (FTNT).
Palo Alto Networks gapped up on Nov. 16 after reporting earnings. It cleared an alternate entry of 275.13 after breaking out of a double-bottom base with a 260.25 buy point.
PANW stock traded tightly near highs after, a sign of strength and support, and formed a flat base with a 375.10 buy point. The buy point was derived by adding 10 cents to the stock’s Dec. 23 intraday high.
Why This IBD Tool Simplifies The Search For Top Stocks
PANW broke gapped up over the 375.10 buy point on Feb. 2. But the stock fell down to its 50-day moving average on Feb. 23 after the company reported its second straight quarter of accelerating sales growth. But its outlook was only slightly above expectations. PANW stock showed impressive price action on Feb. 23, paring an 8% intraday loss to 1.7% and finding support at the 50-day line.
Base Reset
Palo Alto’s weekly chart shows the stock is in the early stages of forming a new base. It hit a low of 320.93 which undercut the low of a prior base. This served to reset the base count, meaning any new breakout from here would be first-stage.
Composite Rating: 88
Latest-quarter EPS % change: 30%
Latest-quarter sales % change: 25%
Three-year annualized EPS growth rate: 14%
Annual return on equity: 36.1%
Annual pretax margin: 18.2%
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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