2020 has been one of the best years for tech stocks, as evidenced by the Technology Select Sector SPDR ETF’s (XLK) 40.8% gain since the beginning of the year. The COVID-19 pandemic has revealed the extent to which society relies on technology and how it has become integrated with many, many aspects of our economies and lives.
While coronavirus vaccine deployment in several countries led to a tech sell off earlier this month, the industry is poised to make a strong recovery we believe given the increasing dependence of people on technology for a plethora of reasons. Also, the renewed lockdown imposition across Europe and other countries has rekindled investor confidence in this industry.
Given this background, stocks such as Taiwan Semiconductor Manufacturing Company Limited (TSM), Match Group, Inc. (MTCH), and Zendesk, Inc. (ZEN) likely hold robust upside potential in 2021.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
TSM is engaged in manufacturing and sale of integrated circuits and semiconductor products. It also provides computer-aided design (CAD) services. The company serves customers in computer, communications, consumer, and industrial and standard segments in North America, Europe, and Asia.
Earlier this month, TSM was honored with the 2021 IEEE Corporate Innovation Award for its leadership in seven-nanometer semiconductor foundry technology. This award highlights the ability of its innovative platforms, which have enabled many revolutionary products in 5G mobile and energy-efficient, high-performance computing and other widespread applications.
TSM’s revenues have increased 21.6% year-over-year in the third quarter ended September 30, 2020. Its operating Income has increased 39.1% from the year-ago value, while EPS rose 35.9% from the same period last year.
Analysts expect TSM’s revenues to rise 22.6% to $12.75 billion for the current quarter ending December 31, 2020. The company has an impressive earnings surprise history; it beat the Street EPS estimates in the trailing four quarters. The consensus EPS estimate of $0.93 for the current quarter represents a 27.4% improvement from the year-ago value. TSM has gained 83.5% over the past year.
How does TSM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
The stock is currently ranked #1 of 87 stocks in the Semiconductor & Wireless Chip Industry.
Match Group, Inc. (MTCH)
MTCH provides dating products worldwide through its portfolio companies. Its portfolio of brands includes Tinder, Match, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, and OurTime, which enables users to connect across the spectrum of age, gender and dating demographics.
Earlier this month, MTCH entered a partnership with RAINN, an anti-sexual violence organization, to improve current safety systems and tools and cultivate a safer online community. This move should attract a large group of users seeking security from internet attacks.
MTCH’s revenues have increased 18.1% year-over-year to $639.77 million in the third quarter ended September 30, 2020. Its non-GAAP EBITDA has increased 21.4% from the year-ago value to $249.18 million, while Operating Income has risen 14.2% from the same period last year to $200.17 million. Its free cash flow has increased 11.1% year-over-year to $486.47 million for the nine-months ended September 30, 2020.
Analysts expect MTCH’s revenues to rise 19% year-over-year to $651.22 million for the current quarter ending December 31, 2020. The company has an impressive earnings surprise history; it beat the Street EPS estimates in three of the trailing four quarters. The consensus EPS estimate of $0.49 for the current quarter represents an 8.9% improvement from the year-ago value. The stock has gained 43.8% over the past three months.
MTCH’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Industry Rank and Peer Grade.
Zendesk, Inc. (ZEN)
ZEN is a customer service software technology solutions company that develops products to help organizations understand and manage customer relationships. Its product line includes Zendesk Support, Zendesk Chat, Zendesk Talk, Zendesk Help Center, Zendesk Message, Zendesk Explore, and Zendesk Connect.
In October, ZEN signed a new research collaboration agreement with the German Aerospace Center (DLR) to investigate the use of Albany Pure graphene-based nanomaterials in the development of novel carbon aerogel composites. This will enable ZEN to develop electrode materials for a new generation of batteries.
To build on its customer experience, this month ZEN joined the Unity Verified Solutions Partner Program. This partnership will provide integrated customer support functionality that can be set up in minutes.
ZEN’s revenues have increased 2.4% year-over-year to $261.93 million in the third quarter ended September 30, 2020. Its non-GAAP Operating profit has increased 135.7% from the year-ago value to $24.93 million, while non-GAAP EPS rose 41.7% from the same period last year to $0.17. Its free cash flow has increased 270.4% to $24.85 million over the same period owing to reduced capital expenditure.
Analysts expect ZEN’s revenues to rise 20.9% to $277.92 million for the current quarter ending December 31, 2020. The company has an impressive earnings surprise history; it beat the Street EPS estimates in three of the trailing four quarters. The consensus EPS estimate of $0.14 for the current quarter represents a 40% increase from the year-ago value. ZEN has gained 86.1% over the past year.
It is no surprise then that ZEN is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #12 of 98 stocks in the Software – Application Industry.
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TSM shares rose $0.06 (+0.06%) in after-hours trading Monday. Year-to-date, TSM has gained 86.53%, versus a 17.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More…
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