U.S. stock markets witnessed a broad-based decline in September. Although historically September is the worst-performing month on Wall Street, this year it is likely to be the most disastrous in a decade courtesy of an ultra-hawkish Fed. The central bank has raised the benchmark lending rate by 3% year to date.
As the Fed has given a clear indication of the continuation of a rigorous interest rate hike and tighter monetary control, a global financial crisis looms larger. Market participants are pricing the cost of an imminent recession in stock valuation.
Currently, the Dow and the S&P 500 indexes are in bear market territory. Surprisingly, the tech-heavy Nasdaq Composite — which is most susceptible to the Fed’s higher interest rate regime — is currently outside the bear market zone.
Wall Street seems grossly oversold despite the continuation of the Fed’s tighter monetary control. Year to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have plunged 18.3%, 22% and 29.4%, respectively.
Several Nasdaq Composite listed stocks are currently available at attractive valuations. Investment in these stocks with a favorable Zacks Rank should be fruitful to gain in the near term. Here are five such stocks —
Airbnb Inc. ( ABNB Quick Quote ABNB - Free Report) , Fortinet Inc. ( FTNT Quick Quote FTNT - Free Report) , VeriSign Inc. ( VRSN Quick Quote VRSN - Free Report) , CDW Corp. ( CDW Quick Quote CDW - Free Report) and Zscaler Inc. ( ZS Quick Quote ZS - Free Report) . Nasdaq Composite Exits Bear Market
In the last two coronavirus-ridden years, the Nasdaq Composite recorded an astonishing rally of more than 140%. The tech-heavy index recorded its all-time high of 16212.23 on Nov 22, 2021. The meteoric rise of the technology stocks was the sole reason for this impressive rally. Consequently, investors started profit booking in this sector from the beginning of 2022.
Moreover, mounting inflation compelled the Fed to significantly raise the benchmark interest rate from March this year. The central bank also imposed tougher monetary control sucking liquidity from the economy and raising the market’s risk-free returns.
A higher interest rate is detrimental to the growth sectors like technology. Consequently, the tech-laden Nasdaq Composite entered the bear market on Mar 7, 2022 after declining more than 20% from its recent high recorded on Nov 22.
After entering the bear market, the Nasdaq Composite registered its recent low of 10,565.14 on Jun 16. Finally, on Aug 4, the Nasdaq Composite exited the bear market after rallying more than 20% from its recent low.
After forming the new bull market, the Nasdaq Composite reached its highest at 13,181.09 on Aug 16. Thereafter, the tech-laden index has taken a downturn once again following a tougher-than-expected monetary stance by the Fed.
Despite the recent decline, the Nasdaq Composite has fallen just 16.2% from its recent high. As a result, the index is currently well outside the bear market territory. Our Top Picks
We have narrowed our search to five Nasdaq Composite listed technology stocks currently trading at a deep discount to their 52-week highs. These stocks have strong potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research Airbnb is riding on an improvement in the travel industry. Continued recovery in both longer-distance and cross-border travel owing to a reduction in travel restrictions is benefiting ABNB’s Nights & Experience bookings. Additionally, growth in Average Daily Rates and Gross Booking Value is acting as a tailwind.
Growing active listings in Latin America, North America and EMEA are contributing well to the top line. Growing sales and marketing initiatives along with continuous efforts to upgrade various aspects of the Airbnb service are helping the company gain momentum among hosts and guests.
Airbnb has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 30 days. ABNB is currently trading at a 47.9% discount from its 52-week high.
Fortinet is benefiting from rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely. FTNT is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network offerings.
Moreover, continued deal wins, especially those of high value, are solid drivers. Higher IT spending on cybersecurity is further expected to aid Fortinet grow faster than the security market. Also, focus on enhancing its unified threat management portfolio through product development and acquisitions is a tailwind for FTNT.
Fortinet has an expected earnings growth rate of 31.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.9% over the last 60 days. FTNT is currently trading at a 32.8% discount from its 52-week high.
VeriSign provides Internet infrastructure services that include domain name registry services and infrastructure assurance services. VRSN’s performance is gaining from growth in .com and .net domain name registrations. VeriSign ended second-quarter 2022 with 174.3 million .com and .net domain name registrations, up 2.2% year over year.
VRSN will be hiking the annual registry-level wholesale fee for each new and renewal .net domain name registration to $9.92, from $9.02 with effect from Feb 1, 2023. VeriSign is expected to benefit from growing Internet consumption globally.
VeriSign has an expected earnings growth rate of 10% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 60 days. VRSN is currently trading at a 31% discount to its 52-week high.
CDW’s performance is benefiting from the digital transformation taking place globally as well as higher revenue growth in Corporate, Small Business and CDW Canada segments owing to the ongoing focus on hybrid work and return to office solutions.
Higher demand for products that enable operations’ continuity plan amid the pandemic is acting as a key catalyst for CDW. Growth in the healthcare end market, a resilient business model, and a solid product and solutions portfolio are key positives. Strategic acquisitions also bode well.
CDW has an expected earnings growth rate of 21.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the last 60 days. CDW is currently trading at a 22.6% discount to its 52-week high.
Zscaler is benefiting from the rising demand for cyber-security solutions owing to the slew of data breaches. Increasing demand for privileged access security on digital transformation and cloud-migration strategies is a key growth driver of ZS.
Zscaler’s portfolio boosts its competitive edge and helps add users. Moreover, a strong presence across verticals, such as banking, insurance, healthcare, public sector, pharmaceuticals, telecommunications services and education, is safeguarding Zscaler from the pandemic’s negative impact. Also, recent acquisitions, like Smokescreen and Trustdome, are expected to enhance ZS’ portfolio.
Zscaler has an expected earnings growth rate of 69.6% for the current year (for July 2023). The Zacks Consensus Estimate for current-year earnings improved 13.6% over the last 30 days. ZS is currently trading at a 55.1% discount to its 52-week high.