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5 Best Stocks That Led the Rally in Nasdaq ETF

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The tech-heavy Nasdaq Composite Index logged in the best month since April 2020, rallying 12.3% in July and showing an astounding comeback from the heavy sell-off led by soaring yields. Invesco QQQ (QQQ - Free Report) , which serves as a proxy to the index, gained 11.3% last month.

Though most of the stocks in QQQ’s portfolio have risen, information technology and consumer discretionary stocks led the way higher. These include Advanced Micro Devices (AMD - Free Report) , Tesla (TSLA - Free Report) , KLA Corporation (KLAC - Free Report) , Lam Research (LRCX - Free Report) and Netflix (NFLX - Free Report) .

Better-than-expected results, declining commodity prices, and falling bond yields brought back the lure for the riskier assets. In particular, the tech sector, which was the biggest victim of surging yields, was the outperformer. The 10-year yield dropped to 2.6% from 3% over the past month in the face of deteriorating economic conditions and recession fears.

Through Jul 29, Q2 results from 279 S&P 500 members or 55.8% of the index’s total membership are up 4.7% on 14.1% higher revenues, with 75.6% beating EPS estimates and 65.6% beating revenue estimates, per the latest Earnings Trends. This is faring better than expected and almost in line with the Q1 earnings and revenue growth of 5% and 14.1%, respectively (read: Stocks' Best Month Since 2020: Top ETF Areas of July).

Additionally, the easing of the prospect of aggressive tightening policy has bolstered investor sentiment. The world's largest economy is poised for a technical recession as GDP shrank by 0.9% in the second quarter, followed by a 1.6% decline in the first quarter. This might prompt the Fed to scale back its interest rate hiking cycle in the fall, resulting in risk-on trade.

Let’s take a closer look at the fundamentals of QQQ.

QQQ in Focus

Invesco QQQ provides exposure to the 102 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Information technology accounts for 50.6% of the assets, while consumer discretionary and communication services make up for a 16.4% and 16% share, respectively.

Invesco QQQ is one of the largest and most-popular ETFs in the large-cap space, with AUM of $168.7 billion and an average daily volume of around 56 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Below, we have highlighted the above-mentioned five stocks in the ETF with their respective positions in the fund’s basket.

Top-Performing Stocks in QQQ

Advanced Micro Devices has emerged as a strong challenger to NVIDIA’s dominance in the graphic processing unit or GPU market based on its Radeon technology. The stock jumped 31.4% over the past month and its earnings are expected to grow 56% this year.

Advanced Micro Devices makes up for 1.3% of assets in QQQ and has a Zacks Rank #3 (Hold). It has a VGM Score of B.

Tesla is the market leader in battery-powered electric car sales in the United States, with roughly 70% market share. The company’s flagship Model 3 is the best-selling EV model in the United States. The stock climbed nearly 31% in a month and accounts for 4.7% in the fund’s basket (read: Tesla Mixed Q2 Earnings Put These ETFs in Focus).

Tesla has an expected earnings growth rate of 75.4% for this year. It has a Zacks Rank #2 (Buy) and VGM Score of B.

KLA Corporation is an original equipment manufacturer (OEM) of process diagnostics and control (PDC) equipment and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. The stock makes up for 0.5% of assets in the QQQ portfolio.

KLA Corporation gained 30.2% last month and has an expected earnings growth rate of 6.5% for the fiscal year (June 2023). It has a Zacks Rank #3 (Hold) and VGM Score of B.

Lam Research supplies wafer fabrication equipment and services to the semiconductor industry. Shares of LRCX gained about 27% over the past month. Lam Research has an estimated earnings growth rate of 13.5% for the fiscal year (ending June 2023).

Lam Research accounts for a 0.6% share in QQQ and has a Zacks ETF Rank of 3. It has a VGM Score of B.

Netflix is considered a pioneer in the streaming space. The company evolved from a small DVD-rental provider to a dominant streaming service provider, courtesy of its wide-ranging content portfolio and a fortified international footprint. Netflix gained 25.7% in a month and accounts for 0.8% in the fund’s basket (read: 5 ETFs to Ride on the Strength in Netflix Q2 Earnings).

Netflix is expected to see an earnings decline of 10.5% for this year and has a Zacks Rank #3.