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Top 5 Nasdaq Stocks Flying High Amid Index's Bloodbath in 1H

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Wall Street has been reeling under extreme volatility since the beginning of 2022. The technology stocks are the major casualties of a hawkish Fed with a higher interest rate regime and tighter-than-expected monetary control. Consequently, the tech-heavy Nasdaq Composite Index suffered a bloody blow in the first half of 2022.

However, we have identified five stocks listed on the Nasdaq Composite with a favorable Zacks Rank that have popped in 2022 despite the index’s recent bloodbath. These are — American Electric Power Co. Inc. (AEP - Free Report) , Aspen Technology Inc. (AZPN - Free Report) , Dollar Tree Inc. (DLTR - Free Report) , Seagen Inc. (SGEN - Free Report) and T-Mobile US Inc. (TMUS - Free Report) .  

Nasdaq Composite Tumbles

The U.S. inflation rate is currently at a 40-year high. In order to combat mounting inflation,  the Fed terminated the monthly $120 billion bond-buy program in March and has started shrinking the size of its $9 trillion balance sheet since June.

The central bank raised the benchmark interest rate from 0-0.25% to 1.50-1.75% in June. Fed Chairman Jerome Powell indicated that the central bank will hike the lending rate by another 75 basis points in July. The yield on the benchmark 10-Year U.S. Treasury Note is currently hovering around 3%.

High-growth-oriented companies, especially the technology companies, depend on easy access to cheap credit to expand their businesses. Moreover, higher market risk-free returns mean a higher discount rate for future cash flows from stock investing. This would affect growth-oriented stocks — especially technology stocks — as these generally provide higher returns over the long term.

Consequently, the Nasdaq Composite plunged 29.5% in the first half of 2022, marking the worst first half in the index’s history. The tech-heavy index also recorded its worst quarterly performance in second-quarter 2022 since 2008. The index had recorded two straight quarters of decline for the last time in 2016. Moreover, the tech-laden index has been in the bear market since March.

Our Top Picks

At this stage, we have narrowed our search to five Nasdaq Composite listed stocks that have witnessed a double-digit rally year to date. These stocks have strong growth potential for 2022 and have seen positive earnings estimate revisions in the last 90 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

Dollar Tree is a customer-oriented, value-driven variety store operating at a one-dollar price point. DLTR operates through two segments, Dollar Tree and Family Dollar. Dollar Tree benefited from the completion of the $1.25 multi-price point initiative at the Dollar Tree stores, as well as robust margins, despite the increase in freight costs and SG&A expenses. Following the robust first-quarter fiscal 2022 performance, DLTR raised its guidance for fiscal 2022 and provided a decent second-quarter view.

Zacks Rank #1 Dollar Tree has an expected earnings growth rate of 40.5% for the current year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. The stock price of DLTR has appreciated 11.3% year to date.

Aspen Technology has been gaining from improving customer demand. AZPN’s diversified product portfolio especially its asset optimization and management software solutions and Asset Performance Management suite is witnessing healthy momentum.

The rapid adoption of cloud-based solutions, the proliferation of big data analytics and IoT technologies, along with higher spend on software, will likely drive Aspen Technology’s top line in the long haul. The integration with Emerson’s OSI Inc and the Geological Simulation Software business bodes well for AZPN.

Zacks Rank #1 Aspen Technology has an expected earnings growth rate of 14.9% for the current year (ending June 2023). The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the last 30 days. The stock price of AZPN has jumped 25.7% year to date.

T-Mobile US has raised its guidance for 2022 across the board. TMUS is on track to complete the Sprint customer network migration mid-year and decommissioning by the year-end. T-Mobile US is expanding its Home Internet pilot extensively while preparing to launch the 5G Home Internet service.

TMUS’ Extended Range 5G covers 315 million people or 95% Americans. The Ultra Capacity 5G covers 225 million people and nearly 85% of T-Mobile US’ customers. About 45% of postpaid customers are using a 5G phone, and 5G devices account for more than half of the total network traffic.

Zacks Rank #1 T-Mobile US has an expected earnings growth rate of 13.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5% over the last 30 days. The stock price of TMUS has climbed 18% year to date.

American Electric boasts a stable earnings base of approximately 5.5 million customers across more than 11 states. AEP’s investment strategy includes incremental investments in renewable generation projects.

American Electric owns the nation's largest electricity transmission system and more than 224,000 miles of distribution lines. AEP plans to invest $24.8 billion in regulated operations, contracted renewables and wires during the 2022-2026 period, which will assist it in achieving long-term earnings growth of 6-7%.

Zacks Rank #2 American Electric has an expected earnings growth rate of 5.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 90 days. The stock price of AEP has advanced 10.1% year to date.

Seagen’s lymphoma drug, Adcetris, has been performing well since its launch. The drug contributes the majority of SGEN’s revenues. Collaboration with Japan’s Takeda for global development and commercialization of Adcetris is also generating royalties.

Seagen's pipeline candidates are progressing well. Padcev, Tukysa and Tivdak were recently approved for three different types of cancer indications. This should reduce the heavy dependence on Adcetris in the future and generate a new revenue stream.

Zacks Rank #2 Seagen has an expected earnings growth rate of 5.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 7 days. The stock price of SGEN has rallied 16.5% year to date.

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