The Nasdaq-100 is one of the world’s preeminent large-cap growth indexes. It  includes 100 of the largest domestic and international non-financial companies that are  listed on the Nasdaq exchange, based on market capitalization. The index reflects companies across major top-performing industry groups, with its largest weightings  going to technology and consumer services.

After being  pummeled in the first quarter of 2020, the broader market proved unstoppable for the rest of the year. The coronavirus pandemic accelerated the pace of digital transformation worldwide as individuals and businesses  relied increasingly on technology to remain functional. This trend has created enormous opportunity for most tech companies.

Investors have not been slow to reward the prominent tech players, helping the tech-heavy Nasdaq-100 to be the first major U.S. stock index to recover  its coronavirus losses in June 2020. The index finished the year with a whopping 47.6% gain, which significantly outperformed the S&P 500’s 16.1% returns.

Though many investors are now moving away from tech stocks to invest in non-tech stocks as a market rotation strategy, the current development wave in artificial intelligence (AI), 5G network, cloud infrastructure, edge computing and virtual reality could drive the market this year and beyond, thereby retaining or reclaiming  investors’ interest in the tech space. If so, the Nasdaq-100 index could deliver broad-market-beating returns again this  year.

Here are three stocks in the Nasdaq-100 index that gained substantially last year and we think could be big winners in 2021: Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Adobe Inc. (ADBE).

Apple Inc. (AAPL)

AAPL is the largest American company and one of the biggest names in the consumer technology market globally. It designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company also deals in software, services, accessories, networking solutions, and digital content and applications. It primarily operates via two segments – Products and Services.

The early response to all AAPL’s new products last year, led by the launch of the first 5G-enabled iPhone, has been tremendous. The company  also introduced a new MacBook Air, a 13-inch MacBook Pro, and a Mac mini powered by the M1, the first chip designed by AAPL. Yesterday, AAPL partnered with Taiwan Semiconductor Manufacturing (TSM) to develop micro-OLED displays, which it plans to use in its forthcoming augmented reality (AR) devices. Moreover, the company is also entering into the booming EV market;  it plans to launch self-driving Apple cars by 2024.

Over the past three years, AAPL’s revenue and EPS have grown at  CAGRs of 7% and 15%, respectively. In AAPL’s fiscal first quarter, ended December 26, 2020, its  revenues increased 21% year-over-year to a record of $111.4 billion. Its international sales contributed 64% to its top-line, attributable to a 21% and 24% improvement, respectively,  in its product segment and services segment. Its  EPS came in at record $1.68, rising 34.4% from the year-ago value.

AAPL is up 68.4% over  the past year. The company is constantly innovating and introducing next generation products on the back of a healthy balance sheet and a strong business model. We think this bodes well for the current year because  the company’s service segment and wearables segment are  growing at an enviable pace and generating high margins. Also,  Wall Street analysts expect AAPL’s current year revenue and EPS to rise 21.6% and 35.7%, respectively, year-over-year.

AAPL’s POWR Ratings reflect this promising outlook. AAPL has an overall rating of B, which equates to Buy in our proprietary rating system.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

It has a B grade  for Sentiment and Quality. It is ranked #21 of 52 stocks in the Technology – Hardware industry.

In total, we rate AAPL on eight different levels. Click here to check additional POWR Ratings for AAPL (Growth, Stability, Momentum, and Value).

Microsoft Corporation (MSFT)

MSFT develops, licenses, and supports software, services, devices, and solutions that, facilitate companies’ digital transformation in this  era of cloud computing. The company offers Azure, a public cloud computing platform, that delivers  solutions that include Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).  MSFT operates primarily through three segments – Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

MSFT has been on an expansion spree lately. Automotive giant Volkswagen Group teamed up with MSFT yesterday to accelerate the development of automated driving through its software company Car. Software Organization, and to build a cloud-based automated driving platform (ADP) on  its Azure platform. MSFT has also launched an employee experience platform, Microsoft Viva,  to integrate the productivity and collaboration capabilities in its 365 and Teams platforms. The new platform leverages the Teams and Office 365 technology to develop a new employee experiences focused on four key areas – Engagement, Wellbeing, Learning and Knowledge.

MSFT’s revenue and EPS have grown at a CAGR of 14.4% and 55.9%, respectively, over the past three  years. In its fiscal second quarter that ended December 31, 2020, MSFT’s revenue surged 17% year-over-year to $43.1 billion on back of commercial cloud revenue, which  generated $16.7 billion, up 34% year-over-year. Its Office Consumer products and cloud services revenue improved 7%, and its 365 Consumer subscribers increased to 47.5 million. Its server products and cloud services revenue increased 26% driven by Azure revenue growth of 50%. And its EPS came in at $2.03, rising 34% compared to the year-ago quarter.

MSFT continues to gain from its investments in strategic and high-growth areas. Consequently, the stock has returned 28.7% over the past year. The massive acceleration in MSFT’s business is affording it  continued dominance  in cloud computing. Moreover, MSFT is benefitting immensely from a massive acceleration in digital transformation across businesses on the back of its Office 365 and cloud offerings. Analysts expect its current year revenue and EPS to rise 14.8% and 28.5%, respectively, compared to the year-ago value.

MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. MSFT has an A  grade for Sentiment and B for Quality. In the 107-stock Software – Application Industry, it is ranked #14.

Beyond what we stated above, we have also given MSFT grades for Growth, Value, Momentum, and Stability. Get all MSFT’s ratings here.

Adobe Inc. (ADBE)

ADBE is one of the largest global software companies. It offers content creation, document management, and digital marketing and advertising software and services to creative professionals and marketers. The company operates in three segments – digital media, digital experience, and publishing for legacy products.

In December, ADBE completed the acquisition of Workfront, a leading work management platform provider for marketers. The marriage seeks to bring efficiency, collaboration and productivity gains to marketing teams currently challenged by  siloed work management solutions. In addition, in October, in collaboration with C3.ai and MSFT, ADBE launched the C3 AI CRM, the first enterprise-class, AI-first customer relationship management solution, purpose-built for industries. It integrates Adobe Experience Cloud and drives customer-facing operations with predictive business insights.

Over the past three years, ADBE’s revenue and EPS have grown at a CAGR of 20.8% and 47.4%, respectively. For the fiscal fourth quarter ended November 30, 2020, ADBE reported  record revenue of $3.42 billion, increasing 14% year-over-year, due primarily to a 20% year-over-year revenue growth in its Digital Media segment. The segment generated $2.5 billion in revenues on the back of its Creative and Document Cloud division. Its non-GAAP EPS came in at $2.81, rising 22.7% compared to the year-ago value of $2.29.

ADBE has gained 33.2% in the past year. In its  fourth-quarter letter to shareholders, ADBE noted: “As the undisputed leader in three growing categories – creativity, digital documents and customer experience management – we are well-positioned to capture the massive market opportunity ahead of us in 2021 and beyond.” Analysts expect the company’s current year revenue and EPS to grow 18.2% and 11.5%, respectively, year-over-year.

It is no surprise that ADBE has an overall rating of B, which equates to Buy in our POWR Ratings system. ADBE has an A grade for Quality and B for Momentum. It is ranked #21 in the Software – Application industry.

Click here to see the additional POWR Ratings for ADBE (Growth, Value, Stability, Sentiment, and Industry).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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AAPL shares were trading at $135.07 per share on Thursday morning, down $0.32 (-0.24%). Year-to-date, AAPL has gained 1.95%, versus a 4.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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