There’s been plenty of trouble this year in the former paradise known as mega-cap territory, but the silver lining is that some previously beloved stocks are now flirting with or sporting valuations that are too attractive to ignore.
Investors who want to eschew stock picking to that effect can turn to exchange traded funds; the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) stand out as two prime options. Those ETFs, both of which follow the Nasdaq-100 Index (NDX), were homes to scores of overvalued stocks entering 2022, but that situation corrected in a big way.
Today, it’s not a stretch to say that QQQ and QQQM are nearly bargain-bin funds as their lineups are littered with scores of prominent, undervalued mega-cap stocks.
“Well, topping the list right now is going to be Meta Platforms (META), the parent of Facebook, and Alphabet, the parent of Google (GOOG). So, both those stocks right now are trading at significant discounts to our fair value. In the case of Meta Platforms, it’s a 5-star rated stock. It trades at less than half of what we think the long-term value of that company is worth,” said Morningstar equity analyst Dave Sekera.
Alphabet and Amazon (NASDAQ:AMZN) are top-10 holdings in both QQQ and QQQM and combine for about 14% of those ETFs’ weights. That’s relevant to investors because those are high quality, wide moat companies that are dramatically undervalued today.
“Alphabet also is a 4-star rated stock. That trades at about a 40% discount to what we think that that company is worth. Now, besides that, Amazon (AMZN) is another one that we have on that list. It’s rated 4-stars. It trades at a 40% discount to our fair value,” added Sekera.
Experienced growth investors know that QQQ and QQQM components don’t often offer discounted valuations, but discounts of this magnitude on names like Alphabet and Amazon are indeed rare. Amazon is a credible catalyst to potentially lead a Nasdaq-100 rebound down the road because professional investors are focusing more on the company’s opportunities outside of e-commerce.
“We also have to realize, too, that we had two years of just extraordinarily strong growth in Amazon because of the pandemic and because of more people shopping online. I also think the market is missing some of the growth prospects of the company. So, their AWS business is still growing exceedingly fast. And I also really like their advertising business. That’s really a strong part of their business that I think the market is underestimating today,” concluded Sekera.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
