On Aug 27, the Nasdaq Composite hit a new milestone, crossing the 8,000 mark. In trade-war inflicted 2018, the Nasdaq Composite has been the best performer among the top three U.S. indices with year-to-date returns of 14.4%, which trumped the Dow Jones’ 4.9% return and the S&P 500’s 7.5% gain.
The tech-heavy index scaled the latest high mainly on solid gains in some big tech names and subsiding trade disputes between the United States and Mexico.
FAANGs in Fashion
FAANGs — Facebook (FB - Free Report) (up 1.6%), Apple (AAPL - Free Report) (up about 0.8%), Amazon (AMZN - Free Report) (up 1.2%), Netflix (NFLX - Free Report) (up about 1.61%) and Alphabet Inc. (GOOGL - Free Report) (up about 1.6%) — stayed strong on Aug 27. If this was not enough, Apple became the first U.S. trillion-dollar company this month. Since FAANGs are instrumental in driving the index, the latest rally in those stocks was all the more reason for the Nasdaq to scale higher.
Cyclical Nature of the Sector
A pickup in the global economy is great for a cyclical sector like technology. Such sectors perform better in a rising rate environment that is currently being witnessed in the United States. Apart from technology, the Nasdaq index has considerable weight in another cyclical sector —Consumer Discretionary. After all, with the U.S. economy growing at a solid clip and job growth remaining steady, it makes sense to cash in on the amazing growth momentum (read: What Rising Rates? Play These Cyclical ETFs).
The Technology sector (77.8% companies have already reported) came up with an earnings beat ratio of 89.8% and revenue beat ratio of 83.7% in Q2. Tech earnings rose 34.4% in the quarter on 12.8% higher revenues, per the Earnings Trends issued on Aug 9.
Meanwhile, Consumer Discretionary (91.2% companies reported so far) logged a 67.7% earnings beat ratio and a 51.6% revenue beat ratio. The sector’s earnings and revenue growth was 19.6% and 5.9%, respectively.
U.S.-Mexico Trade Deal
Plus, the overall market got an added impetus on Aug 27 from easing trade tensions between the United States and Mexico as the duo agreed on a new bilateral trade deal. Tensions between the countries have been rife since President Trump’s election campaign days. So, some negotiations on this front bode well for the markets.
Will the Bull Run Continue?
While many are jittery about stretched valuation and a ‘2000-style crash’ of Nasdaq, most experts are of the opinion that these fears are groundless. Bespoke Investment Group noted that in 1999-2000, the surge was all about tech but the latest run consists of “tech and a lot of other companies.” It speaks more of fundamental strength.
Still, we highlight below a few top-ranked stocks from the Nasdaq which have a P/E ratio less than that of Nasdaq-100 ETF Invesco QQQ (QQQ - Free Report) (22.8x).
PCM Inc. (PCMI - Free Report) – P/E (F1) 10.64x
The Zacks Rank #1 (Strong Buy) company is a technology solutions provider to businesses, government and educational institutions and individual consumers. It comes from a top-ranked Zacks industry (top 26%) and has a VGM Score of C.
Celgene Corporation (CELG - Free Report) – P/E (F1) 11.77x
This global biopharmaceutical company has a VGM Score of B and a Zacks Rank #2 (Buy). It comes from a top-ranked Zacks industry (top 35%).
Patrick Industries Inc. (PATK - Free Report) – P/E (F1) 13.36x
This Zacks Rank #1 company is a major manufacturer of component products and distributor of building products and materials for the Recreational Vehicle, Manufactured Housing and Marine industries. It hails from a top-ranked Zacks industry (top 38%) and has a VGM Score of C.
Cypress Semiconductor Corporation (CY - Free Report) – P/E (F1) 15.83x
The Zacks Rank #2 company is a leader in advanced embedded system solutions for the automotive, industrial, home automation and appliances, consumer electronics and medical products. It has a VGM Score of B and it belongs to a top-ranked Zacks industry (top 7%).
Credit Acceptance Corporation (CACC - Free Report) – P/E (F1) 16.26x
It is a specialized financial services company which provides funding, receivables management, collection, sales training and related services to automobile dealers. It has a Zacks Rank #1. It comes from a top-ranked Zacks industry (top 19%).
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