The technology sector is booming and has shown strong resilience in one of the worst economic environments that the United States has ever seen. The rally is showing no sign of slowing with four of the five big names — Amazon AMZN, Microsoft MSFT, Apple AAPL and Alphabet GOOGL — surpassing a trillion-dollar market capitalization each for the first time last week since the COVID-19 pandemic (read: Big Tech Stocks Top Trillion-Dollar Each: ETFs to Bet On).
Additionally, the e-commerce boom, given the shift in consumer habits to a purely digital world with work, entertainment and shopping from home during the COVID-19 pandemic added to the strength. Further, the rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, self-driving cars, and 5G technology are fueling strong growth in the space.
Most notably, the ultra-popular Technology Select Sector SPDR Fund XLK, which is largely concentrated on big tech firms, hit all-time highs in the recent session, gaining 26.8% over the 13-week period and 18.4% year to date. Investors should note that XLK registered its best quarter since December 1999 to wrap up Q2.
Let’s take a closer look at the fundamentals of XLK and the stocks behind this rally:
Inside The XLK
The ETF follows the Technology Select Sector Index and holds 71 stocks in its basket with higher concentration on the top two firms with more than 20% share each. Software takes the top spot at 34.6% from an industrial look while technology hardware storage & peripheral, IT services, and semiconductors round off the next spots with double-digit exposure each. The fund has AUM of $32.7 billion and charges 13 bps in fees per year from investors. It trades in heavy volume of around 16.8 million shares a day on average, ensuring higher liquidity with a tight bid/ask spread, leading to lower trading costs for investors (read: Chip ETF (SMH) Posts Best Q2: 5 Stocks That Led the Way).
XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Though most stocks in the fund’s portfolio have delivered astounding returns over the past three months, a few were the real stars, gaining in about 40% and more. Below, we have highlighted the five best-performing stocks in the ETF in the year-to-date timeframe:
Best-Performing Stocks of XLK
PayPal Holdings Inc. PYPL: The stock has skyrocketed about 73% over the past three months. It has seen a positive earnings estimate revision of couple of cents for this year over the past 30 days with estimated earnings growth of 7.42%. The stock has a Zacks Rank #3 (Hold) and Growth Score of B. It occupies the eight position in the basket with 2.9% of XLK.
NVIDIA Corporation NVDA: The stock has soared about 56% in the same time frame. It currently has a Zacks Rank #2 and a Growth Score of C. The stock saw no earnings estimate revision in the past month for the fiscal year (ending Jul 2021) and has estimated earnings growth of 36.44%. It takes the fifth spot in XLK portfolio with 3.5% allocation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Autodesk Inc. ADSK: The stock has surged nearly 54% in the same timeframe. It has a Zacks Rank #3 and Growth Score of A. Autodesk saw negative earnings estimate revision of couple of cents over the past month for the fiscal year (ending Jul 2021) and has an estimated earnings growth rate of 36.92% year over year. It accounts for 0.7% share in XLK.
ServiceNow Inc. NOW: This stock makes up for 1.1% share in the fund’s basket. It has also delivered robust returns of 50.3% over the past three months. The stock witnessed no earnings estimate revision activity over the past 30 days for this year and has estimated earnings growth of 27.7% year over year. ServiceNow has a Zacks Rank #3 and Growth Score of A (read: 10 Power-Packed ETFs to Buy for Second-Half 2020).
Skyworks Solutions Inc. SWKS: This stock makes up for 0.3% of XLK’s assets. It has jumped 46.7% in the same timeframe and saw no earnings estimate revision for the fiscal year (ending Sep 2020) over the past 30 days. Its earnings are expected to decrease by 10.05%. Skyworks Solutions has a Zacks Rank #3 and Growth Score of B.
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