As companies stick with virtual work arrangements even as the effects of the COVID-19 pandemic abate, the technology sector should continue to generate strong momentum. According to a survey conducted by E-Trade, 46% of wealthy investors picked tech as their top target for gains in the third quarter, up from 34% in the second quarter.

Furthermore, rapid digitalization across all sectors, coupled with the increasing adoption of advanced technological solutions and widespread deployment of 5G, will likely fuel the industry’s growth. This has made investors bullish about the industry, as evidenced by the Technology Select Sector SPDR Fund’s (XLK) 12.4% returns over the past three months.

Considering these factors, fundamentally strong tech stocks KLA Corporation (KLAC) and Nokia Corporation (NOK), which Wall Street analysts have upgraded recently,  we think could be wise additions to your portfolio now.

KLA Corporation (KLAC)

KLAC is a global semiconductor and nanoelectronics company that designs, produces, and distributes process control and yield management products. The Milpitas, Calif.-based company offers products and services to various bare wafer, integrated circuit, reticle, and hard disc drive manufacturers. Needham recently upgraded the stock from ‘Hold’ to ‘Buy.’

In June, KLAC unveiled four new products for automotive chip manufacturing: the 8935 high productivity patterned wafer inspection system; the C205 broadband plasma patterned wafer inspection system; the Surfscan SP A2/A3 unpatterned wafer inspection systems; and the I-PAT inline defect part average testing screening solution. Since semiconductor chips are at the core of automotive safety applications and operations, this new portfolio should help the company provide high yield, reliability, and performance to support the automotive electronics ecosystem.

During its fiscal year ended June 30, 2021, KLAC’s revenue increased 19.2% year-over-year to $6.92 billion. Its cash and cash equivalents surged 26% year-over-year to $2.49 billion, while its net income grew 70.8% from the prior-year quarter to $2.08 billion. The company’s EPS increased 73.6% year-over-year to $13.37 over this period.

A $14.16 consensus EPS estimate for the current year represents a 36.8% improvement year-over-year. The $6.87 billion consensus revenue estimate for the current year represents an 18.3% increase from the same period last year. The stock has gained 72.7% over the past year and 36.7% year-to-date.

KLAC's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

KLAC is also rated an A grade for Quality, and a B for Sentiment and Momentum. In addition,  within the B-rated Semiconductor & Wireless Chip industry, it is ranked #15 of 99 stocks.

To see additional POWR Ratings for Growth, Value, and Stability for KLAC, click here.

Click here to checkout our Semiconductor Industry Report for 2021

Nokia Corporation (NOK)

Espoo, Finland-based NOK specializes in network and Internet protocol (IP) infrastructure, software, and associated services. Nokia Networks and Nokia Technologies are two of the company's business divisions. Ultra-Broadband Networks; IP Networks; and Applications & Analytics are among the various segments the company operates. The stock was recently upgraded to Outperform from Neutral by Cowen.

This month, NOK and Taiwan Mobile announced that they had achieved the world’s first new radio carrier aggregation by combining spectrum in the 700MHz (n28) and 3500MHz (n78) bands. With this innovation, the company is expected to better serve the changing demands of customers with faster speed, more capacity, and seamless connectivity.

Also, last month, NOK announced that it has collaborated with Empire Access to provide up to 10GB/s speeds to new subscribers in the Greater Binghamton region west of the Catskill Mountains in New York. This will enable the company to expand its brand footprint and boost its revenue growth.

During the second quarter ended June 30, 2021, NOK's net sales increased 4.3% year-over-year to €5.31 billion ($6.30 billion). Its operating profit rose 184.7% from its year-ago value to €484 million ($573.82 million). Its net income increased 254.6% year-over-year to €351 million ($416.14 million), while its EPS grew 200% from the prior-year quarter to €0.06 ($0.07).

A $0.31 consensus EPS estimate for next year represents a 6.9% improvement year-over-year. The $25.81 billion consensus revenue estimate for the current year represents a 3.5% increase from the same period last year. The stock has gained 22.2% over the past year and 59.3% year-to-date.

NOK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Sentiment, and a B for Value. In the B-rated Technology - Communication/Networking industry, it is ranked #15 of 56 stocks.

In total, we rate NOK on eight different levels. Beyond what we've stated above, we have also given NOK grades for Growth, Quality, Stability, and Momentum. Get all the NOK ratings here.

KLAC shares were trading at $354.23 per share on Thursday morning, up $0.43 (+0.12%). Year-to-date, KLAC has gained 37.61%, versus a 18.73% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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