Back to top

Image: Bigstock

5 Tech Stocks Lifting the Nasdaq ETF to New High

Read MoreHide Full Article

The Nasdaq Composite Index staged a stunning comeback, recouping all losses incurred early last month when the index had slipped into a correction territory. In fact, it hit a record high for the second consecutive session and has been outperforming major indices, which are yet to fully recover from February’s selloff, by a wide margin from a year-to-date look.   

The strength in the technology sector, which accounts for nearly half of the index, helped Nasdaq surge on a gain of 8.3% this year compared with gains of 1.4% for the Dow Jones and 3.2% for the S&P 500 (read: Can Tech ETFs Regain Investors' Love After Selloff Snub?).

What’s Driving Tech?

The sharp gains came from the astounding surge in FAANG stocks and other high-performance technology names. The emergence of cutting-edge technology such as big data, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies as well as strong corporate earnings are acting as key catalysts.

The twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are also pushing stocks higher. This is because tech titans hoard huge cash overseas and are poised to benefit the most from the reduced tax rates. Additionally, most of the tech companies are sitting on a huge cash pile and are in a position to increase payouts to shareholders. The cash reserves will ensure that these companies do not face any financial trouble in a rising interest rate environment.

Adding to the strength is a pickup in the economy and better job prospects that are boosting economically-sensitive growth sectors like technology, which perform typically well in a maturing economic cycle. With the global economy gathering momentum, technology companies are likely to outperform and are less susceptible to interest rates or deregulation.

If these weren’t enough, waves of consolidation among semiconductor manufacturers are driving tech stocks to new highs (read: 5 ETF Ways to Tap Hot Semiconductor Stocks).

As a result, PowerShares QQQ (QQQ - Free Report) , which serves as a proxy for the index, has climbed nearly 12% so far this year. Let’s take a closer look at the fundamentals of QQQ.

QQQ in Focus

This ETF provides exposure to 104 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq-100 Index. Information technology accounts for 61.1% of the assets, while consumer discretionary takes a 22.2% share. QQQ is one of the largest and the most popular ETFs in the large-cap space with AUM of $65.6 billion and average daily volume of around 35.3 million shares. It charges investors 20 bps in annual fees. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 9 ETFs That Emerged Bulls From the Bottom of Bear Market).

Though most of the stocks in the fund’s portfolio delivered strong returns, a few were the real stars, having gained more than 25%. Below we have highlighted five best-performing tech stocks in the ETF with their respective positions in the fund’s basket:

Top-Performing Tech Stocks in QQQ

Seagate Technology plc (STX - Free Report) : This Ireland-based company designs, produces, and distributes electronic data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. It saw impressive earnings estimate revision of 55 cents over the past 60 days for the fiscal ending June 2018, with expected earnings growth of 18.20%. The stock has a Zacks Rank #1 (Strong Buy) and VGM Score of A. STX makes up for just 0.21% allocation in the fund’s basket and has delivered incredible returns of nearly 44% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Workday, Inc. (WDAY - Free Report) : This California-based company is engaged in providing enterprise cloud applications for human resources and finance. The stock has seen positive earnings estimate revision of a couple of cents for the fiscal ending January 2019 over the past two months, with projected earnings growth of 16.50%. It has surged more than 35% this year and carries a Zacks Rank #3 (Hold) and a VGM Score of D. The stock holds a 0.23% share in QQQ.

Autodesk Inc. (ADSK - Free Report) : This California-based company is a leader in 3D design, engineering and entertainment software. Though the stock saw negative earnings estimate revision of 7 cents for the fiscal ended January 2019 over the past two months, it is expected to generate whopping earnings growth of 310.42%. The stock has rallied about 33% this year and makes up for 0.38% of the fund. Currently, ADSK has a Zacks Rank #4 (Sell) and a VGM Score of F.

Micron Technology Inc (MU - Free Report) : This Idaho-based company is one of the world's leading providers of advanced semiconductor solutions. The stock has gained about 33% this year and saw solid earnings estimate revision of 74 cents over the past two months for the fiscal ending August 2018, with an expected earnings growth rate of 113.1%. Micron Technology has a Zacks Rank #2 (Buy) and a VGM Score of A. The stock accounts for 0.77% of the fund (see: all the Large Cap ETFs here).

NVIDIA Corporation (NVDA - Free Report) : This California-based company is a worldwide leader in graphics processors and media communications devices. This stock has risen more than 26% so far this year and has 1.8% exposure in the fund’s basket. It saw solid earnings estimate revision of $1.56 over the past two months for the fiscal ending January 2019, with an expected earnings growth rate of 28.86%. NVIDIA has a Zacks Rank #1 and a VGM Score of D.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in