Tech stocks have finally joined the market's rally and are turning into a driving force. The Technology Select Sector SPDR exchange-traded fund (XLK) is up 5.3% over the past month, making it the best performing of all 10 sectors in the S&P 500 during that time. The tech rally is a big reason why the S&P 500 is up 1.4% over the past month and hitting new highs.
The tech-stock rally has intensified over the past month due to solid earnings reported from the companies. Tech stocks in the S&P 500 reported 1.2% higher second-quarter profit, which was nearly 7 percentage points better than what was expected in early July, says S&P Global. Investors seem to be positioning themselves for the tech profit bonanza around the corner. S&P 500 tech companies are expected to report 14.4% higher adjusted earnings in the first quarter of 2017, third only to expected earnings growth in materials companies of 22.8% and financials at 17.1%.
Some of the tech stocks with the highest potential upside are those that have been beaten down or left out of the market rally. Solar equipment maker First Solar is the tech stock analysts see the most upside in. First Solar is expected to be worth 55% more in 18 months than it is now. Part of that upside expected, though, can be explained by the fact First Solar shares are down 19% over the past month. The shares have been hit by "uncertainty in the solar industry" due to "potential oversupply of (solar) modules," says Ben Kallo, analyst at R. W. Baird. Analysts expect the company's adjusted profit to fall by nearly a quarter in the current fiscal year and again in fiscal 2017. But forecasts looking out to fiscal 2018 see profit growing again and "expansion potential in 2018 and beyond is substantial," Kallo says.
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