Overall, 2021 has been a very strong year for the stock market with the S&P 500 up 22% entering the last month of the year. Recently, the index has encountered a heavy bout of selling and is down nearly 3% from last Monday’s all-time high of 4,743.8.

A major reason for this dip is the omicron-variant of the coronavirus which has been identified in many countries. This variant is especially concerning as it seems to be more contagious than previous variants, and there are some reports that it may evade antibodies from existing vaccines.  It’s also coming amid a backdrop of rising coronavirus cases which isn’t too surprising given its tendency to spread more in winter months and that travel volumes are currently running at 90% of 2019 levels.

Another catalyst was Fed Chair Powell’s remarks at Tuesday’s Congressional testimony in which he said that he would no longer describe the rise in inflation as being “transitory”. This caused a sharp selloff in the stock market and caused major averages to close below Friday’s lows. 

However, the stock market’s uptrend remains intact and fundamentals in the form of interest rates and earnings growth remain supportive. The flare-up in coronavirus cases could lead to a rotation from cyclical into tech stocks like we saw for much of 2020. Therefore, investors should consider buying the following 3 tech stocks: Paycom (PAYC), Diodes (DIOD), and Microsoft (MSFT).

Diodes (DIOD)

DIOD is a global manufacturer and supplier of application-specific products within the broad discrete, logic, analog, and mixed-signal semiconductor markets. It serves the consumer electronics, computing, communications, industrial and automotive markets. DIOD offers various integrity solutions for high-speed signals, including rectifiers; transistors; MOSFETs; GPP bridges; GPP rectifiers; protection devices; function-specific arrays; single gate logic; amplifiers, and comparators, and other products.

One reason to consider the semiconductor industry is the sector’s remarkable relative strength. Compared to other sectors and the major averages, semiconductors have had a much more mild decline and managed to make higher lows during the recent selloff, while the majority of stocks and sectors made lower lows. This is providing a nice risk/reward opportunity and such relative strength bodes well for a year-end rally.

In its last quarter, DIOD’s revenue increased 52.3% to $471.42 million. Operating income rose 104.1% from the prior-year quarter to $77.25 million. Guidance beat expectations with 46.5% revenue growth expected. Another sign that analysts continue to underestimate the stock’s growth and earnings power is its 4 straight quarters of beating expectations. 

DIOD’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. A-rated stocks have posted average annual returns above 30%, outpacing the S&P 500’s average annual gain of 7.1%. 

The POWR Ratings also identifies stocks by component grades including Industry grade. Not surprisingly, the semiconductor industry has an A rating. It’s benefitting from tightness in supply, leading to higher pricing power, and strong growth in tech spending. To see more of DIOD’s component grades, click here. 

Paycom (PAYC)

PAYC provides cloud-based human capital management solutions. The company offers talent acquisition, time and labor management, payroll, talent management, and HR management solutions. PAYC’s applications allow clients and their employees to access and manage administrative processes, including onboarding employees directly, administering payroll activities, managing performance, terminating employees, and administering post-termination health benefits, such as COBRA.

PAYC is benefitting from companies increasingly using software platforms to manage these services, and the strong labor market which increases demand and use for these types of products. 

These strong sector fundamentals are reflected in its recent earnings report which showed 30.4% revenue growth and operating income increasing by 27.2% to $43.3 million. The outlook is also strong with full year growth of 24.2% in revenue and 30% in earnings. 

The Wall Street community’s bullishness on the stock is reflected in its consensus price target of $572, implying 30% upside. The POWR Ratings are also bullish on the stock as it has an overall B rating, which equates to a Buy in our proprietary rating system. 

The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. It’s not surprising that it has Growth and Sentiment grades of B given its recent earnings report and analysts’ price targets. also evaluates stocks by various components to give more insight. To see more of PAYC’s POWR Ratings, click here.

Microsoft (MSFT) 

MSFT is the second-most valuable company in the world with a valuation of $2.5 trillion. A decade ago, it looked like MSFT had stagnated and was falling behind its peers like Google and Facebook. Instead, the company found new avenues of growth as it pivoted to becoming a cloud-centric company and started offering its software products as a subscription product.

This has led Microsoft to be one of the best-performing stocks in the entire world since the ascension of CEO Satya Nadella in February 2014. During his tenure, Microsoft’s stock price is up by more than 1,000% when also including dividend payments. Additionally, the company’s revenues have increased by 120%, earnings by 308%, and profit margins have gone from 25% to 38%. 

What’s equally impressive is that Microsoft’s recent earnings report shows that growth remains strong. Revenues increased 22% to $45.3 billion. Operating income increased 27% to $20.23 billion, and EPS increased by 25%. Unlike many tech stocks which saw an acceleration during the pandemic, Microsoft is seeing no adverse effects of the economy returning to normal.

MSFT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has a B grade for Stability, Sentiment, and Quality. It is ranked #20 out of the 168 stocks in the Software – Application industry. Click here to check the ratings of MSFT for Growth, Value, and Momentum.

MSFT shares were trading at $334.92 per share on Wednesday afternoon, up $4.33 (+1.31%). Year-to-date, MSFT has gained 51.84%, versus a 23.77% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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