Signs of gradual improvement in the economy have increased the chances of the Fed tapering its monetary support at some point this year. Accordingly, investors are moving from defensive sectors like utilities and consumer staples and to cyclical sectors like technology and industrials (read: Buy These ETFs to Profit from "Sector Rotation").
Cyclical or high growth stocks have largely been ignored by investors. But since these stocks are now attractively priced and promise bright long-term growth, investors can pay more attention to this space. A popular choice in this space is of course the technology sector.
Though the technology sector has been broadly mixed so far this year due to uncertainty surrounding some of the top tech players, it could well emerge as the winner as we progress into the second half of the year (read: Winning ETF Strategies For the Second Half).
While the sector enjoys virtual monopoly on several services in many countries, in others such as the U.S., an oligopoly is predominant. A lack of competition under both circumstances and high start-up costs that deter new entrants, make this space an obvious choice for investors seeking high long-term returns.
Cloud computing and mobility add to the long-term growth prospects of the sector. Further, since the technology firms have been dividend growth leaders, investors can depend more on these for income.
A look at the top ranked ETFs in the space that have a lower level of risk, could be a good idea for investors in the current volatile environment. One way to find a top ranked ETF in the tech space is by using the Zacks ETF Ranking system (read: Zacks ETF Rank Guide).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Stron! g Sell) while they also receive one of three risk ratings, namely Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk (see more in the Zacks ETF Center).
For investors seeking to apply this methodology to their portfolio in the tech sector, we have taken a closer look at the top ranked VGT below. This product has a Zacks ETF Rank of 1 or ��trong Buy��with a ��ow��risk outlook, and thus could be a solid pick for investors seeking to tilt towards the tech sector this year:
Vanguard Information Technology ETF (VGT)
This is one of the largest and most liquid products in the technology ETF space with AUM of over $3 billion and average daily trading volume of roughly 219,000 shares. VGT is also the low cost choice in the space as it charges just 14 bps in fees and expenses.
In terms of performance, this fund hasn�� participated much in the current rally as it has added just around 7% year-to-date. This is lower than the broad market fund, SPY, and other products in the space by wide margins. However, we think it could be poised for a surge in the coming months, based on both technical and fundamental factors described below:
Technical Look
Although the fund hasn�� broken out of its near term range, its short-term moving averages have managed to stay above long-term levels. The 9-Day SMA is now comfortably above the longer-term 200-Day SMA, suggesting continued bullishness for this ETF (read: The Top Choice in the Tech ETF World?).
Meanwhile, the fund�� RSI is at just over 60, suggesting that the fund isn�� too overbought, and that it still has some more room to run before it gets ahead of itself. This is further confirmed by an upswing in the Parabolic SAR, although this figure should definitely be monitor! ed closel! y.
Fundamentals
The fund provides exposure to a large basket of 428 stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. It is highly concentrated in its top 10 holdings with 56% of assets, suggesting that company specific risk is pretty high and the top 10 firms dominate the returns of the fund.
Apple (AAPL), Microsoft (MSFT), Google (GOOG) and International Business Machines (IBM) occupy the top four spots. In terms of industrial exposure, computer hardware, system software, internet software, semiconductors and IT consulting make up for at least 10% share in the basket.
The product primarily focuses on large caps as it accounts for 80% of VGT, though a small allocation has been made to mid caps and small caps too. In terms of style, the ETF is skewed towards growth securities which is basically a momentum play and makes it a great strategy in a trending market (read: Bet on This Top Ranked Large Cap Growth ETF).
This proved to be the winning strategy for the fund in the past years, as VGT delivering a robust return of 45% over the trailing three years and 11.77% in the trailing one-year period. Additionally, the ETF yields a decent 1.13% in annual dividends.
Bottom Line
Despite the fund�� relatively heavy concentration (20.66% as per xtf.com), this tech ETF still could be a good choice for investors. This is based on a solid combination of technical and fundamental factors, suggesting VGT could be a great pick in today�� market environment.
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10 Best Small Cap Stocks To Own For 2014: Achillion Pharmaceuticals Inc.(ACHN)
Achillion Pharmaceuticals, Inc., a biopharmaceutical company, engages in the discovery, development, and commercialization of treatments for infectious diseases. The company focuses on the development of antivirals for the treatment of chronic hepatitis C; and the development of antibacterials for the treatment of resistant bacterial infections. Its drug candidates for the treatment of chronic HCV include ACH-1625, a protease inhibitor, which is in phase IIa clinical trial for the treatment of chronic HCV; ACH-2684, a pangenotypic protease inhibitor, which is in phase I clinical trial for the treatment of chronic HCV infection; and NS5A inhibitors for the treatment of chronic HCV infection, including ACH-2928, which is to enter a phase I clinical trial, as well as various additional NS5A inhibitors in preclinical development. Its pipeline of product candidates also includes ACH-702 and ACH-2881 for drug resistant bacterial infections; elvucitabine for HIV infection; and AC H-1095 for HCV infection. The company was founded in 1998 and is based in New Haven, Connecticut.
Advisors' Opinion: - [By Brian Nichols]
Achillion is an odd play because it has both the most upside and the most downside of any stock on this list. The company's developing and testing its hepatitis C treating drug, ACH-1625, which is currently in phase II. The results of initial testing have consisted of ups and downs, but after many years and a long process, ACH-1625, appears to be on the right track for an FDA approval.
The upside in shares of ACHN comes from two places: encouraging data from trials and its likelihood of being acquired. In my opinion, ACHN has a very high chance of being acquired in the next 6 months. Both Pharmasset (VRUS) and Inhibitex (INHX) were acquired over the last 5 months with insanely large premiums. VRUS was purchased at a 81% premium and INHX for a 182% premium. ACHN is perhaps the most speculative, but it could also be purchased the cheapest.
The stock's recently pulled back after a downgrade and is trading much lower over the last couple weeks. The stock's trend reminds me so much of INHX; the month following the VRUS acquisition when INHX traded higher by nearly 300%. But then after the one-month gain, INHX lost its momentum and traded lower by 40% before being acquired with a 182% premium. INHX traded higher after the VRUS purchase because investors thought it would also be acquired, because of its hepatitis C candidate. ACHN is following the same trend, from November 12 till January 13 the stock more than doubled, but has since retraced.
At $10 I think ACHN is a buy, it does have a good HCV candidate, and I believe that big pharma will bid to acquire ACHN in the near future. However, the risk in ACHN is if the company's not acquired, then it could have significant loss over the next year. But in a competitive biotechnology industry I believe the reward is worth the risk, and that a large pharma company will take the chance and purchase ACHN in an attempt to stay competitive and capitalize on the trend of investors being bullish on HCV treating drugs.
10 Best Small Cap Stocks To Own For 2014: ATA Inc.(ATAI)
ATA Inc., through its subsidiaries, provides computer-based testing services in the People?s Republic of China. It offers services for the creation and delivery of computer-based tests utilizing its test delivery platform, proprietary testing technologies, and testing services; and provides logistical support services relating to test administration. The company?s computer-based testing services are used for professional licensure and certification tests in various industries, including information technology (IT) services, banking, securities, teaching, and insurance. Its e-testing platform integrates various aspects of the test delivery process for computer-based tests ranging from test form compilation to test scoring, and results analysis. ATA also provides career-oriented educational services, such as single course programs, degree major course programs, and pre-occupational training programs focusing on preparing students to pass IT and other vocational certification tests; test preparation and training programs and services to test candidates preparing to take professional certification tests in securities, futures, banking, insurance and teaching industries; online test preparation and training platform for the securities and banking industries; and test preparation software for the teaching industry. In addition, the company offers HR select employee assessment solution, an online system that utilizes its proprietary software and an inventory of test titles to help employers improve the efficiency and accuracy of their employee recruitment process. As of March 31, 2010, it had contractual relationships with 1,988 ATA authorized test centers. The company serves Chinese governmental agencies, professional associations, IT vendors, and Chinese educational institutions, as well as individual test preparation services. ATA Inc. was founded in 1999 and is based in Beijing, the People?s Republic of China.
Advisors' Opinion: - [By Wyatt Research Staff]
The Chinese-based educator spiked higher recently after it exceeded analysts' expectations. Revenue and adjusted earnings soared 78% and 269%, respectively. Its long-term annual growth rate is 15%.
Analysts at Zacks Investment Research upgraded shares from "neutral" to "outperform".
China Metro-Rural Holdings Limited, through its subsidiaries, primarily engages in the development and operation of agricultural logistics and trade centers in northeast China. It also involves in purchasing, processing, assembling, merchandising, and distributing pearls and jewelry products. The company markets its pearls and jewelry products to wholesale distributors and mass merchandisers in Europe, the United States, Hong Kong, and other parts of Asia. In addition, it develops, sells, and leases residential and commercial properties in Hong Kong and the People?s Republic of China. The company is based in Tsimshatsui, Hong Kong.
Advisors' Opinion: - [By Wyatt Research Staff]
The stock moved significantly higher in mid-January and traded in a fairly tight range ever since. However, that could change soon. China's agricultural exports to Japan will grow if radiation continues to seep into the food chain.
China exported $593 million worth of agricultural goods to Japan last year.
10 Best Small Cap Stocks To Own For 2014: Voyager Oil & Gas Inc.(VOG)
Voyager Oil & Gas, Inc. engages in the exploration and production of oil and gas in the United States. It primarily focuses on oil shale resource prospects in Montana, North Dakota, Colorado, and Wyoming. As of May 17, 2011, the company controlled approximately 141,500 net acres in the five primary prospect areas comprising 28,000 net acres targeting the Bakken/Three Forks in North Dakota and Montana; 14,200 net acres targeting the Niobrara formation in Colorado and Wyoming; 800 net acres targeting a Red River prospect in Montana; 33,500 net acres in a joint venture targeting the Heath Shale formation in Musselshell, Petroleum, Garfield, and Fergus counties of Montana; and 65,000 net acres in a joint venture in the Tiger Ridge gas field in Blaine, Hill, and Chouteau counties of Montana. It supplies energy and fuel for industrial, commercial, and individual consumers. The company is based in Billings, Montana.
Advisors' Opinion: - [By SmallCap Investor]
Shares of this explorer, which has operations in the Western U.S., crossed back above $3 and have risen 40 percent in the past month, amid increasing investor interest in companies drilling in the Bakken region.
10 Best Small Cap Stocks To Own For 2014: bebe stores inc.(BEBE)
bebe stores, inc. engages in the design, development, and production of women?s apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21 to 34-year-old woman. As of July 2, 2011, it operated 252 retail stores, and an online store at bebe.com in the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in south east Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey. The company was founded in 1976 and is headquartered in Brisbane, California.
Advisors' Opinion: - [By CRWE]
bebe stores, inc. (Nasdaq:BEBE) reported that its Board of Directors declared bebe�� quarterly cash dividend of $0.025 per share. The dividend is payable on December 4, 2012 to shareholders of record at the close of business on November 20, 2012
- [By Wyatt Research]
The women's apparel retailer reported fiscal fourth-quarter sales and same-store sales both rose 7 percent. The stock is up 30 percent year-to-date.
10 Best Small Cap Stocks To Own For 2014: Petroquest Energy Inc(PQ)
PetroQuest Energy, Inc. operates as an independent oil and gas company. It engages in the acquisition, exploration, development, and operation of oil and gas properties in Oklahoma, Arkansas, and Texas, as well as onshore and in the shallow waters offshore the Gulf Coast Basin. As of December 31, 2009, the company had estimated proved reserves of 1,931 thousand barrels of oil and 167,361 million cubic feet equivalent of natural gas. It owned working interests in 9 net producing oil wells and 277 net producing gas wells. PetroQuest Energy was founded in 1983 and is headquartered in Lafayette, Louisiana.
Advisors' Opinion: 10 Best Small Cap Stocks To Own For 2014: InterDigital Inc.(IDCC)
Interdigital, Inc. engages in the design and development of digital wireless technology solutions. The company offers technology solutions for use in digital cellular and wireless products and networks, including 2G, 3G, 4G, and IEEE 802-related products and networks. It holds patents related to the fundamental technologies that enable wireless communications. The company licenses its patents to equipment producers that manufacture, use, and sell digital cellular and IEEE 802-related products; and licenses or sells mobile broadband modem solutions, including modem IP, know-how, and reference platforms to mobile device manufacturers, semiconductor companies, and other equipment producers that manufacture, use, and sell digital cellular products. InterDigital?s solutions are incorporated in various products comprising mobile devices, such as cellular phones, tablets, notebook computers, and wireless personal digital assistants; wireless infrastructure equipment, such as base stations; and components, dongles, and modules for wireless devices. The company was founded in 1972 and is headquartered in King of Prussia, Pennsylvania.
Advisors' Opinion: - [By CRWE]
InterDigital, Inc. (NASDAQ:IDCC) reported that certain of its subsidiaries have completed the previously announced sale of roughly 1,700 patents and patent applications to Intel Corporation for $375 million in cash.
- [By SmallCap Investor]
The wireless technology company said it's exploring its options, including a possible sale, following last month's successful auction of Nortel Networks intellectual property which brought in $4.5 billion. IDCC owns about 1,300 patents related to mobile phone technology.
10 Best Small Cap Stocks To Own For 2014: FuelCell Energy Inc.(FCEL)
FuelCell Energy, Inc., together with its subsidiaries, engages in the development, manufacturing, and sale of high temperature fuel cells for clean electric power generation primarily in South Korea, the United States, Germany, Canada, and Japan. The company offers proprietary carbonate Direct FuelCell Power Plants that electrochemically produce electricity from hydrocarbon fuels, such as natural gas and biogas. Its fuel cells operate on a range of hydrocarbon fuels, including natural gas, renewable biogas, propane, methanol, coal gas, and coal mine methane. The company also develops carbonate fuel cells, planar solid oxide fuel cell technology, and other fuel cell technologies. It provides its products to universities; manufacturers; mission critical institutions, such as correction facilities and government installations; hotels; and natural gas letdown stations, as well as to customers who use renewable biogas for fuel, including municipal water treatment facilities, br eweries, and food processors. The company was founded in 1969 and is headquartered in Danbury, Connecticut.
Advisors' Opinion: - [By Roberto Pedone]
Fuelcell Energy (FCEL) designs, manufactures, sells, installs and services ultra-clean, highly efficient stationary fuel cell power plants for distributed baseload power generation. This stock is trading up 7.2% to $1.01 in recent trading.
Today’s Range: $0.94-$1.01
52-Week Range: $0.83-$1.95
Volume: 1.27 million
Three-Month Average Volume: 1.04 million
From a technical perspective, FCEL is ripping higher here right above its 50-day moving average of 92 cents per share with above-average volume. This move is quickly pushing shares of FCEL within range of triggering a near-term breakout trade. That trade will hit if FCEL manages to take out its 200-day moving average at $1.05 and then once it takes out more overhead resistance at $1.06 with high volume.
Traders should now look for long-biased trades in FCEL as long as it’s trending above its 50-day at 92 cents per share, and then once it sustains a move or close above those breakout levels with volume that hits near or above 1.04 million shares. If that breakout hits soon, then FCEL will set up to re-test or possibly take out its next major overhead resistance level at $1.18. Any high-volume move above $1.18 will then put $1.39 into range for shares of FCEL.
- [By SmallCap Investor]
The developer of stationary fuel cells used by commercial and government customers might be headed for a rebound from a pullback that began this spring - which has left the stock down 39 percent year-to-date.
10 Best Small Cap Stocks To Own For 2014: OmniVision Technologies Inc.(OVTI)
OmniVision Technologies, Inc. designs, develops, and markets semiconductor image-sensor devices. The company offers CameraChip image sensors, which are single-chip solutions that integrate various functions, such as image capture, image processing, color processing, signal conversion, and output of a processed image or video stream for use in various consumer and commercial mass-market applications; and CameraCube imaging devices that are image sensors with integrated wafer-level optics. It also provides companion chips used to connect its image sensors to various interfaces, including the universal serial bus and other industry standard interfaces; and companion digital signal processors that perform compression in standardized still photo and digital video formats. In addition, the company designs and develops software drivers for Linux, Mac OS, and Microsoft Windows, as well as for embedded operating systems, such as Blackberry OS, Palm OS, Symbian, Windows CE, Windows Embedded, and Windows Mobile. Its products are used in mobile phones, notebooks, Webcams, digital still and video cameras, commercial and security and surveillance, and automotive and medical applications, as well as in entertainment devices. The company sells its products directly to original equipment manufacturers and value added resellers, as well as indirectly through distributors worldwide. OmniVision Technologies, Inc. was founded in 1995 and is based in Santa Clara, California.
Advisors' Opinion: 10 Best Small Cap Stocks To Own For 2014: Hot Topic Inc.(HOTT)
Hot Topic, Inc., together with its subsidiaries, operates as a mall- and Web-based specialty retailer in the United States. The company operates Hot Topic and Torrid store concepts, as well as an e-space music discovery concept, ShockHound. Its Hot Topic stores sell music/pop culture-licensed merchandise, including tee shirts, hats, posters, stickers, patches, postcards, books, novelty accessories, CDs, and DVDs; and music/pop culture-influenced merchandise comprising women?s and men?s apparel and accessories, such as woven and knit tops, skirts, pants, shorts, jackets, shoes, costume jewelry, body jewelry, sunglasses, cosmetics, leather accessories, and gift items for young men and women primarily between the ages of 12 and 22. The company?s Torrid stores sells casual and dressy jeans and pants, fashion and novelty tops, sweaters, skirts, jackets, dresses, hosiery, shoes, intimate apparel, and fashion accessories for various lifestyles for plus-size females primarily betw een the ages of 15 and 29. As of July 30, 2011, it operated 636 Hot Topic stores in 50 states, Puerto Rico, and Canada; 145 Torrid stores; and Internet stores, hottopic.com and torrid.com. The company was founded in 1988 and is headquartered in City of Industry, California.
Advisors' Opinion: