Every quarter, The Seasonal Investor crunches data to determine which stocks offer the best seasonality. Last quarter, the list included 15 stocks which returned an average of 23.24%, far higher than the impressive 12.7% return for the S&P 500 ETF (SPY).
Of the 15 stocks highlighted last quarter, four were technology stocks. Three beat the market and combined they produced an average 24.58% return, led by a 53% jump in Priceline.com (PCLN).
Since it pays to know which stocks perform best each quarter, we used data to see which technology stocks offer wind in the sails heading into this summer.
As it turns out, technology has the distinction of offering large-cap investors the widest array of strong seasonal stocks for Q2.
Across the seven seasonally strong large-cap technology stocks, a common theme emerges. Those companies selling network equipment, transmitting signals, managing data or benefiting from consumers insatiable appetite for bandwidth are among the best performers.
The first seasonally strong large-cap technology stock is American Tower (AMT). The stock has never been cheap. And building out all those cell towers saddled it with a lot of debt. But exploding demand for smart phones and mobile connected devices like tablets is driving tremendous demand for high bandwidth content. Carriers are being forced to respond, and that means American Tower is handling more and more traffic.
A second seasonally strong performer is Salesforce.com (CRM), which grew sales 38% last quarter. The company has little debt and continues to enjoy growth as IT spending increases. A recent JPMorgan survey of 100 CIOs points to software spending remaining a key priority for IT budgets, with spending expected to climb 5.5% this year. So while Salesforce is another not-to-be-confused-with-cheap technology stock, as long as companies embrace the cloud Salesforce will benefit.
DirecTV (DTV) is another top seasonal performer. A lot of the company's subscriber growth has come from its expansion in Latin America, where a net 2.1 million new subscribers last year helped propel revenue from the region 42% higher in Q4. A key to success remains leveraging users for more revenue and 8.1% growth in average revenue per user (ARPU) in Latin America suggests the company is succeeding. Additionally, unlike American Tower and Salesforce, shares are trading about 9x forward earnings estimates, which is below the 5 year PE low.
EMC Corp (EMC) is another beneficiary of big data. Shares are trading at a 20x 2011 earnings and If investors decide they're willing to pay a similar multiple on expected 2013 EPS of $1.98, shares would reach nearly $40, up 33% from here.
Ericsson (ERIC) is also riding the wave of capital spending by telco's boosting capacity to handle YouTube videos and movie streams. Shares offer upside as carriers roll out next generation networks worldwide. Shares are 33% below their 52-week high and yield 2.5%. Analysts expect EPS to climb 29% in 2013 from 2012, which gives Ericsson a 12.8x forward multiple - on the low end of its range.
Much like Salesforce, F5 Networks (FFIV) is riding the global cloud computing wave. The street expects F5's earnings to grow 19% this year and 19% again in 2013. As companies add Bring Your Own Device ("BYOD") services, security and speed remain paramount. This means demand growth for F5's application delivery network products, which manage and secure network traffic.
The last seasonally strong technology stock is Sprint Nextel (S), the oft forgotten carrier. Sprint is 55% off its 52-week high and hasn't turned a profit since 2007. Last year, Sprint picked up 5 million subscribers as ARPU rose 4.2% for its post-paid subscribers. If the addition of the iPhone and its data friendly plan format is enough to keep churn down, which it's showing early signs of doing, and it can bulk up subscriber numbers, perhaps the turn will finally come. In the short run, investors willing to make the bet in Q2 have been rewarded over the past five years.
Symbol | SECTOR | # Up Past 5 Years | Q2 Average |
AMT | TECHNOLOGY | 5 | 4.92% |
CRM | TECHNOLOGY | 5 | 12.28% |
DTV | TECHNOLOGY | 5 | 4.41% |
EMC | TECHNOLOGY | 5 | 10.64% |
ERIC | TECHNOLOGY | 5 | 13.25% |
FFIV | TECHNOLOGY | 5 | 32.25% |
S | TECHNOLOGY | 5 | 22.77% |
Source: | The Seasonal Investor |
