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Big Tech Bites: Buy These Top-Ranked Small-Cap Stocks


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Thanks to a spate of negative news from some of the key companies in the space, the technology sector is stuck in a vicious web of trading, pushing the large-capitalization technology and internet stocks into a correction zone. This is especially true, as NYSE FANG+ index , which tracks the 10 biggest and most active tech stocks in the world, is down 15.4% from its latest Mar 12 peak.

The initial panic was triggered on Mar 19 following Facebook's FB data scandal that raised chances of more regulation in the industry. Then, the sell-off continued with Nvidia's NVDA suspension of self-driving tests and speculation of further regulation on the social media platform Twitter TWTR . Tesla TSLA is also losing on concerns over a recent Model X accident and lower-than-expected Model 3 production while Netflix NFLX is probably being crushed for its super-high valuation. Amazon AMZN , the e-commerce behemoth, has constantly been the victim of Trump's series of tweets, spurring a big decline in the stock.

The worst does not end here as the prospect of a trade war seems on the table with China hitting back with tariffs of up to 25% on 128 U.S. goods, including wine, fruits, nuts, and frozen pork, against Donald Trump's taxes on imported steel and aluminum. On the other hand, Trump is seeking to impose tariffs on up to $60 billion in Chinese imports targeting the technology, telecom and apparel sectors by this week.

The round of sanctions and retaliation could trigger a global trade war, hurting the global economy and corporate profits at big U.S. exporters. In particular, technology stocks, which are the biggest contributors to the nine-year bull market and a Trump rally, are expected to be hit hard as most of the tech companies, especially semiconductor manufacturers and software companies, have large operations in the Chinese market. As a result, investors should focus on small-cap stocks in the space to shield themselves from the ongoing sector turbulence.

Why Small Caps?

Since small-cap stocks are closely tied to the U.S. economy and do not have much exposure to the international market, these are considered safe and better plays if any political or economic issue creeps into the picture. As such, these pint-sized stocks could better insulate investors against the trade jitters and allow them to take advantage of the booming economy and strong sector fundamentals.

In particular, the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, and artificial intelligence as well as strong corporate earnings are acting as the key catalysts. Rising interest rate scenario, tax cut, a pickup in the economy and better job prospects bode well for the sector.

Top Picks

Given this, we have highlighted six stocks that have a top Zacks Rank #1 (Strong Buy), a VGM Score of A or better, a double-digit earnings growth for the current year and a market capitalization of less than 2,000 billion. These stocks have easily survived the rout in the past month with most of them in the green. You can see the complete list of today's Zacks #1 Rank stocks here .

Comtech Telecommunications Corp. CMTL

The New York-based company designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. It saw solid earnings estimate revision of 69 cents for the year (ending August 2018) over the past month and has an earnings estimated growth of 232.35%. The stock has a VGM Score of B and a market cap of $520.55 million. It has surged 30% over the past month.

Rudolph Technologies Inc. RTEC

The Massachusetts-based company is a worldwide leader in the design, development, manufacture and support of high-performance process control metrology, defect inspection and data analysis systems used by semiconductor device manufacturers. Though it saw no earnings estimate revision over the past month, the company is expected to generate earnings growth of 34.71% for this year. The company has a market cap of $747.03 million. The stock has gained 4.7% in a month and has a VGM Score of B.

Stoneridge Inc. SRI

The Michigan-based company is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty truck, and agricultural vehicle markets. The stock saw positive earnings estimate revision of 30 cents over the past month for this year with an expected growth of 24.84%. It is up 20% in a month and has a market cap pf $640.05 million. Stoneridge has a VGM Score of A.

Kulicke and Soffa Industries Inc. KLIC

The Singapore-based company is a leading provider of semiconductor packaging and electronic assembly solutions supporting the global automotive, consumer, communications, computing and industrial segments. Though the company saw no earnings estimate revision over the past month, it is expected to generate earnings growth of 43.87% for the year (ending September 2018). The company has a market cap of $1.72 billion and a VGM Score of A. The stock has gained 6.4% in a month.

NETGEAR Inc. NTGR

The California-based company designs, develops, and markets networking and Internet connected products for consumers, businesses, and service providers. It saw positive earnings estimate revision of four cents over the past month for this year with an expected growth of 18.98%. It has delivered flat returns in a month and has a market cap of $1.70 billion. NETGEAR has a VGM Score of B.

ePlus inc. PLUS

The Virginia-based company is an engineering-centric technology solutions provider with a market cap of $1.06 billion. It provides information technology (IT) products and services, flexible leasing and financing solutions, and enterprise supply management in the United States. Though the company saw no earnings estimate revision over the past month, it is expected to generate earnings growth of 24.94% for the year (ending March 2019). The stock has shed 2.1% in a month and has a VGM Score of A.



The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 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.

See Zacks' 3 Best Stocks to Play This Trend >>


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NETGEAR, Inc. (NTGR): Free Stock Analysis Report

Rudolph Technologies, Inc. (RTEC): Free Stock Analysis Report

Kulicke and Soffa Industries, Inc. (KLIC): Free Stock Analysis Report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Netflix, Inc. (NFLX): Free Stock Analysis Report

Facebook, Inc. (FB): Free Stock Analysis Report

Twitter, Inc. (TWTR): Free Stock Analysis Report

ePlus inc. (PLUS): Free Stock Analysis Report

Comtech Telecommunications Corp. (CMTL): Free Stock Analysis Report

Tesla, Inc. (TSLA): Free Stock Analysis Report

Stoneridge, Inc. (SRI): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: NTGR , RTEC , KLIC , AMZN , NFLX



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