After a brief blip, the U.S. stock market keeps trucking along. The S&P 500 is up 5.5% through the first quarter of 2017, a stark contrast to last year’s slow start. No sector has performed better than technology stocks. And the best tech stocks are also some of the most familiar.
Large cap tech stocks are leading the charge, with many of them hitting new all-time highs last week. The Guggenheim S&P 500 Eq Wt Technology ETF (RYT), which features some of the higher-profile tech stocks in the S&P 500, is up nearly 11% year to date, exactly double the return of the S&P 500 itself.
Some investors were concerned that the tech sector would take a big hit with Donald Trump in office. Trump isn’t considered the most tech-friendly U.S. President, though his proposed corporate tax cuts would certainly benefit some of the Silicon Valley big boys. So, while tech stocks initially struggled after Trump’s election, they’ve taken off since his inauguration.
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And you don’t have to dig too deep to find the tech companies leading the rally. The best tech stocks are among the usual suspects, companies that are household names to serious and casual investors alike.
Here are the five best tech stocks through the first quarter of 2017:
Five Best Tech Stocks of Q1
Best Tech Stock #1: Broadcom Limited (AVGO)
Market Cap: $88.4 billion
YTD Return: 22.9%
This Singapore-based semiconductor company has been riding high since its November acquisition of Brocade (BRCD) for $5.5 billion. Brocade is a dominant player in the storage area network business—a business that’s complementary to Broadcom’s offerings of wired infrastructure, wireless communications, enterprise storage and industrial products. Broadcom intends to sell Brocade’s IP networking business, valued at about $2.0-$2.5 billion, in order to avoid competing with its own customers, which include Cisco Systems (CSCO), Intel (INTC), and Hewlett Packard Enterprise (HPE).
Best Tech Stock #2: Facebook (FB)
Market Cap: $411 billion
YTD Return: 22.7%
Better-than-expected fourth quarter earnings for the Social Network were fueled by the company’s continued improvements in mobile ad growth. Mobile ads now account for 84% of Facebook’s total sales, driven by ads in fairly new places, such as Instagram and Facebook Live. Three years ago, Facebook’s mobile and desktop ad sales were on virtually equal footing, and the company was barely turning a profit. Now that mobile ads comprise the lion’s share of Facebook’s total sales, profits have grown 50% or better for five straight quarters. And Facebook stock has surged accordingly.
Best Tech Stock #3: Micron Technology (MU)
Market Cap: $31.5 billion
YTD Return: 29.7%
Micron’s stranglehold on the dynamic random-access memory (DRAM) market helps it stand out in the competitive memory chip sector, especially now that the DRAM market is bouncing back after a disappointing couple of years.
That dominance, along with increased supply and escalating demand, has also allowed it to raise prices on its DRAM (and NAND) memory chips substantially. Micron is expected to raise DRAM prices by 25% this year.
The rough patch in the DRAM industry caused Micron stock to drop off a cliff for 18 months. From December 2014 to May 2016, MU tumbled from 36 to 9 — a 74% decline. At 28 as of this writing, MU stock has recovered more than two-thirds of those losses, and yet it remains exceedingly cheap on a forward basis, trading at 5.5 times forward earnings estimates. MU stock could keep blasting higher for a while.
Best Tech Stock #4: Salesforce.com (CRM)
Market Cap: $58.2 billion
YTD Return: 19.7%
Salesforce stock has been up and down for years, and after dipping to 68 in late December it’s been on another upcycle. A nice fourth quarter helped, as its 26.8% sales growth matched the best year-over-year improvement in the last nine quarters. The company also posted its first profitable year since 2011. Keep a close eye on this one, though: CRM trades at 315 times earnings, and it’s bumping up against two-year resistance at 83.
Best Tech Stock #5: Yahoo (YHOO)
Market Cap: $44.5 billion
YTD Return: 19.7%
Rumors of this once-great giant’s demise have been greatly exaggerated. Verizon (VZ) has helped sustain it, agreeing on a $4.5 billion deal to buy Yahoo’s core business in February. The deal is expected to be finalized sometime in the second quarter. The strength in YHOO stock started long before the calendar flipped to 2017—kiting from 26 in February 2016 to 46 today. Three straight quarters of sales growth have helped, and the company grew revenues by more than 15% in the fourth quarter of 2016. The company isn’t making money, but Verizon’s buyout should help in that regard.
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