Technology Stocks: Are You Ready For The Coming Rally?

| July 18, 2011 | 0 Comments

Macro events are dominating the market action right now.  Concerns about the future of the European Union and the potential for a US default have infused a big dose of volatility into the markets.

Just take a look at the CBOE Volatility Index (VIX), and you’ll see what I mean.

The chart shows volatility has been rising ever since fears of a Greek default picked up in late April.  And more recently, investor fears of a US default sent volatility levels spiking.

Given the seriousness of these issues, it’s really no surprise investors are getting worried.

However, with all eyes focused on the big picture events, many investors are about to miss a potentially huge rally in technology stocks.  I’ll explain why in a moment, but first a little background information.

Last week, Google (GOOG) kicked off the second quarter earnings season for technology stocks with a bang.  The internet search giant posted a scorching 32% increase in revenue to over $9 billion.  And earnings soared 35% to an impressive $7.68 per share.

Both figures beat even the most bullish analysts’ estimates.

More importantly, the tech bellwether’s better than expected results ignited a rally in technology stocks.  The tech heavy Nasdaq increased more than 1% on Friday despite news seven European banks failed their stress tests.

This kind of action says one thing… investors are chomping at the bit to send technology stocks soaring.

And if Google’s earnings are any indication, we could be in for a flurry of better than expected earnings from several more tech bellwethers.  On deck in the earnings circle this week are IBM (IBM), Apple (AAPL), and, Intel (INTC).

Clearly, strong earnings reports from these companies are likely to send tech stocks marching higher in a hurry.

IBM is set to lead off the week with earnings after the market’s close today.  Analysts are expecting a 7% increase in revenues to over $25 billion.  And they’re looking for a 16% jump in earnings to $3.03 per share.

At least one analyst says demand for the company’s iconic mainframe computers remains strong.  And after securing several lucrative contracts recently, Big Blue’s service business is likely to post solid growth.

After IBM posts their numbers, all eyes will turn to Apple.  The tech darling is scheduled to report on Tuesday.

Apple’s numbers should pick up where Google left off.  Analysts are expecting revenues to surge by 58% to a whopping $24.8 billion.  And they’re forecasting earnings to rocket 63% higher to $5.73 per share.

Strong sales of iPhones, iPads, and Mac computers are seen leading the way.  In fact, Gartner just reported Apple is now the third largest computer maker behind only Hewlett-Packard (HPQ) and Dell (DELL).

No doubt about it… impressive numbers from IBM and then Apple could give the emerging rally in tech stocks a major lift.

Then on Wednesday, we’ll hear from chip giant, Intel (INTC).  And I’m expecting their numbers to smash analysts’ estimates as well.

Wall Street’s expectations for the chipmaker are way too low!

Analysts are forecasting no year over year growth in earnings on just a 16% rise in revenue.  This is despite comments from CEO, Paul Otellini, the company’s seeing “phenomenal growth across all of its various product groups” in the enterprise and data markets.  And the low estimates don’t take into account the company’s outlook for low double-digit growth in the consumer market.

Remember, Intel’s executives are notoriously conservative in their estimates.  They like to jawbone estimates down in order to manufacture solid upside surprises in revenues, margins, and earnings.

With nearly everyone expecting lackluster numbers, an upside surprise from Intel could easily send tech stocks rallying.

As you can see, we have several high profile technology companies preparing to report second quarter earnings this week.  After the big upside surprise from Google, it’s not unlikely we’ll see more of the same from other tech bellwethers.

Grab shares of your favorite tech stocks today to participate in the coming rally.  Or gain exposure to the entire sector through the Technology Select Sector SPDR (XLK).

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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