Tech stocks continued their lightning-quick selloff on Tuesday, with the Nasdaq closing 4% lower to enter correction territory as Wall Street returns from its summer break. The selling, as to be expected, has been driven by coronavirus standouts such as Apple AAPL, Amazon AMZN, Zoom Video ZM, Tesla (NASDAQ:TSLA) TSLA, and others.
The S&P 500 and Nasdaq both hit records last Wednesday, while the Dow climbed above 29,000 for the first time since February. Since then, all three major U.S. indexes have tumbled, with the tech-heavy Nasdaq down slightly over 10% from its recent highs. This selling could simply have been a chance for many investors to take home profits on the high-flying tech space.
It took only three trading sessions for the Nasdaq to enter a correction, which seemed overdue given the massive run over the last five months. This downturn likely marks the healthy recalibration of many overheated stocks. And since the pullback happened so fast, things could potentially turn around somewhat quickly as well.
Investors should also remember that most of the recent economic data continues to point to a recovery. Therefore, the next frontier for the market to navigate will likely be the upcoming U.S. election, which is only eight weeks away. The quickly approaching election could put more pressure on Congress to push through another stimulus.
All that said, stocks might continue to fall in the near-term. Yet investors seem likely to start scooping up some of these quickly beaten-down tech names sooner than later. And, of course, stocks are poised to benefit as the Fed keeps interest rates pinned near zero.
Now it’s time to dive into three tech stocks with strong fundamentals that investors might want to consider buying after the Nasdaq entered correction territory. All three also offer the added bonus of a dividend, which is always nice to have, especially amid broader uncertainty.
Lam Research LRCX
Lam Research is a global supplier of wafer fabrication equipment and services, which is a vital part of the ever-growing semiconductor space. LRCX is part of our Semiconductor Equipment – Wafer Fabrication industry that currently ranks No. 4 out of over 250 Zacks industries. LRCX’s sales jumped 18% last quarter (Q4) to lift its FY20 revenue by 4%. This helped it start to bounce back from a 13% revenue decline in fiscal 2019.
Looking ahead, Zacks estimates call for LRCX’s adjusted fiscal 2021 earnings to surge 30% on 24% stronger revenue, with another 15% earnings growth expected in FY22 on 10% better sales. Along with its strong outlook within the historically cyclical chip market, its consensus earnings estimates have climbed significantly to help LRCX land a Zacks Rank #1 (Strong Buy) right now.
Lam Research announced at the end of August that it raised its dividend by 13%. LRCX’s yield now rests at 1.72% to top its industry’s 0.98% and match the S&P 500. The stock also continues to trade at a solid discount compared to its peer group.
Plus, Lam Research was already sliding before the recent selloff pushed it back to its June levels. Lam Research shares closed regular trading Tuesday down 21% off its early August highs. And the stock is still up 90% over the last 24 months.
Verizon is the largest U.S. wireless carrier by subscribers. The firm beat our Q2 estimates in late July. The telecom powerhouse’s revenue did slip roughly 5% during the period that captured the worst part of the coronavirus downturn. Despite the economic backdrop, management maintained its full-year guidance and the stock is up over 7% since its July 24 financial release.
Investors should note that VZ didn’t get hammered during the past three trading days because it wasn’t part of the massive run. Nonetheless, the stock has jumped 20% since the market’s March lows and is up around 2% over the last year to crush AT&T’s T 20% decline. This outperformance extends back around three years, with VZ up 30%, with its telecom rival down 18%.
Verizon is a Zacks Rank #3 (Hold) right now that rocks “B” grades for Value, Growth, and Momentum in our Style Scores system. Plus, the firm announced last week that it raised its dividend for the 14th year in a row. VZ’s yield, which clearly isn’t artificially inflated by a falling stock price, sits at 4.19% right now to blow away the S&P 500 average and many other established dividend-paying tech stocks.
Let’s also not forget that Verizon will play a significant role in the 5G future. And it hasn’t taken on a ton of debt to fuel expansion into new industries like AT&T (NYSE:T).
Applied Materials is a leading semiconductor equipment firm that boasts that its solutions are “used to produce virtually every new chip and advanced display in the world.” AMAT is part of the same industry as Lam Research and executives expect the company to benefit from the expansion of big data, AI, and more. AMAT topped our Q3 estimates in mid-August, with revenue up 23% and adjusted earnings up 43%. And its CEO said in prepared remarks that it “is positioned to grow faster than our markets over the next several years.”
Shares of Applied Materials are down around 15% in the last three sessions and over 18% since their post-Q3 release highs. Still, AMAT is up 40% during the market’s comeback and 10% over the last years. AMAT also trades at a discount against the broader tech sector even though its shares have skyrocketed 260% during the past five years, against 130%.
Peeking ahead, our Zacks estimates call for AMAT’s adjusted Q4 earnings to jump 46%, on 23% stronger sales that would see it reach $4.6 billion. Applied Materials has also seen its bottom-line revisions trend higher since its release to help it land a Zacks Rank #2 (Buy), alongside its “B” grade for Momentum. And its 1.58% dividend yield puts it roughly in line with the S&P 500’s average.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report