Bellwether earnings continued to impress on Apr 23 with Microsoft (MSFT - Free Report) and Facebook (FB - Free Report) releasing better-than-expected results. Microsoft beat on both revenues and earnings with the stock moving toward a valuation of $1 trillion.

Meanwhile, Facebook’s earnings suffered from a Federal Trade Commission (FTC) penalty but impressed on other counts. While an earnings deceleration for the sector is expected during the first quarter, things are not as bad as earlier feared.

Further, the Technology Select Sector SPDR (XLK) remains the S&P 500’s best performer in the year-to-date period. Tech stocks are now helping U.S. equity markets reach new highs on a regular basis. This is why it is a good idea to pick stocks from the sector that are likely to outperform their earnings estimates.

Microsoft Impresses, Facebook Defies Headwinds

In the first quarter, Microsoft reported earnings per share of $1.14, surpassing the Zacks Consensus Estimate of $1.00. Revenues of $30.6 billion also exceeded the Zacks Consensus Estimate of $29.8 billion. Strong demand boosted revenues for its cloud-based services to $9.7 billion, marking a yearly jump of more than 40%. Azure garnered revenues of $7.3 billion.

Facebook’s first-quarter earnings of 85 cents per share missed the Zacks Consensus Estimate of $1.66. This was largely due to the fact that the social media giant had to spend $3 billion in quarterly profits on legal expenses arising out of an FTC investigation. However, revenues of $15.1 billion outpaced the Zacks Consensus Estimate of $15 billion.

And surprisingly, investors remained unfazed by all the headwinds hitting Facebook recently. So much so that shares rose more than 7% in after-hours trading on Apr 23. Daily active users came in at 1.56 billion, beating most expectations and rising 8% year over year. Monthly active users increased to 2.38 billion, also outpacing estimates.

Tech Stocks Remain Year’s Best Performers

Strong earnings from these two tech behemoths serve to underline the success of the sector this year. The XLK is the S&P 500’s best performing sector year to date, gaining 27.3% easily outpacing the broader index’s 16.8% increase. Tech stocks rebounded strongly during the first quarter, helping U.S. stocks post their best performance in almost a decade.

At this point, multiple concerns surrounding the sector seem to be receding. It is highly probable that sector earnings will decline 8.3% from the same period last year on 2.7% higher revenues.

But worries about the domestic economy, trade wars, and Brexit seem to be grossly overblown. China’s economy is responding favorably to stimulus measures. Its trade war with the United States is nearing a speedy resolution. Meanwhile, a delay in Brexit has reduced the impact of a no-deal Brexit considerably till October.

Our Choices

Microsoft and Facebook’s impressive first-quarter results indicate that fears surrounding the sector may be overstated. Technology remains the S&P 500’s best performer this year and is likely to notch further gains on a robust domestic economy. China’s resurgence and a delayed Brexit have also reduced headwinds for the sector.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Paycom Software, Inc. (PAYC - Free Report) is a provider of cloud-based human capital management (HCM) software as a service solution for integrated software for both employee records and talent management processes.

Paycom beat the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 8.7%.

Powered with the right combination of the two key ingredients — an Earnings ESP of +3.17% and a Zacks Rank of 1 — our proven model shows that an earnings beat is expected for Intuitive Surgical in the to-be-reported quarter as well.

The company is expected to report first-quarter 2019 results on Apr 30.

Fortinet Inc. (FTNT - Free Report) is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide.

Fortinet surpassed the Zacks Consensus Estimate for earnings in the last four consecutive quarters, with an average positive earnings surprise of 18.8%.

An Earnings ESP of +1.49% and a Zacks Rank of 1 raises chances of an earnings beat for Illumina in the to-be-reported quarter as well.

The company is expected to report first-quarter 2019 results on May 2.

Ceridian HCM Holding Inc. (CDAY - Free Report) provides HCM software on a global scale.

Ceridian beat the Zacks Consensus Estimate for earnings in two of the last four quarters, with an average positive earnings surprise of 54.2%.

An Earnings ESP of +31.65% and a Zacks Rank of 1 raises the odds of an earnings beat for HCA Healthcare this time around.

The company is expected to report first-quarter 2019 results on May 1.

Square, Inc. (SQ - Free Report) provides payment and point-of-sale (POS) services, which include hardware and software to accept payments, streamline operations and analyze business information.

Square surpassed the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive earnings surprise of 16%.

With an Earnings ESP of +5.50% and a Zacks Rank of 2, we can predict an earnings beat for Elanco Animal Health this reporting cycle.

The company is expected to report first-quarter 2019 results on May 1.

Shopify Inc. (SHOP - Free Report) provides a multi-tenant, cloud-based, multi-channel commerce platform for small and medium-sized businesses.

Shopify topped the Zacks Consensus Estimate for earnings in the last four quarters, with an average beat of 151%.

Powered with an Earnings ESP of +7.14% and a Zacks Rank of 2, an earnings beat can be expected from Humana in the to-be-reported quarter as well.

The company is expected to report first-quarter 2019 results on Apr 30.