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What Do Analysts Recommend for XLK’s Technology Stocks?

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Mar. 18 2016, Updated 9:35 a.m. ET

Analysts’ recommendations

In this part of the series, we’ll look at the most attractive technology firms based on analysts’ ratings and valuations. Among the 1,801 analysts covering the 74 firms within the Technology Select Sector SPDR Fund (XLK), 933 have provided a “buy” rating, 93 have given a “sell” rating, and 775 have provided a “hold” rating. With more than 50% “buy” ratings, analysts remain bullish on these stocks despite turbulent markets.

Wall Street (SPY) analysts are mostly upbeat about Facebook (FB) as it has received “buy” ratings from 48 analysts among the 53 analysts who are covering the stock. Four analysts are of the view that investors should continue holding this stock, and one analyst believes the stock should be sold.

In contrast, analysts are mostly negative about the performance of VeriSign (VRSN), as the stock has received the least number of “buy” ratings. Out of the eight analysts covering the stock, three believe the stock should be sold, four have rated it a “hold,” and one has assigned it a “buy” rating.

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Valuations

Firms within XLK are trading at an average PBV (price-to-book value) ratio of 5.7x. Micron Technology (MU) is the cheapest stock with a PBV ratio of 0.96x, while Intuit (INTU) is the most overvalued with a PBV ratio of 41.0x.

Relative strength index

On average, the technology stocks within XLK have a 14-day RSI (relative strength index) reading of 63, suggesting that they are still not overbought. Symantec (SYMC) and AT&T (T) have RSI readings of 77 and 76, respectively, which means they are in overbought territory. Verizon, Oracle, IBM, and Hewlett Packard Enterprise also have RSI readings over 70. Meanwhile, Alliance Data Systems Corporation (ADS), which has an RSI reading of 44, may be considered undervalued.

RSI is a technical momentum indicator used to determine overbought or oversold conditions. An asset is deemed to be overbought once its RSI reading approaches 70, meaning that it may be becoming overvalued. Likewise, if an RSI reading approaches 30, it is an indication that an asset may be becoming oversold and is likely to become undervalued.

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