Technology Stocks: Are You Ready For The
Coming Rally?
The Dynamic Wealth Report
July 18, 2011
by Robert Morris, Editor
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.
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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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• Gambling (+13%)
Stocks of gaming companies have been soaring over the past month.
Surging revenue and profits at several Macau-based casinos have sparked
renewed enthusiasm for the entire industry. A few of the larger stocks
leading the charge are Wynn Resorts (WYNN), Melco Crown (MPEL), and
Las
Vegas Sands (LVS).
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