The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are typically viewed as growth-heavy exchange traded funds and, in more sanguine market environments, that description is accurate.
Amid a substantial repudiation of large- and mega-cap growth stocks this year, some members of the Nasdaq-100 Index (NDX) — the underlying benchmark for both Invesco ETFs — are looking like value stocks. In fact, some analysts are arguing that some growth stocks are now downright undervalued.
“Heading into the third quarter, stocks look downright cheap according to our metrics: The median stock in Morningstar’s North American coverage universe traded at a 17% discount to our fair value estimate,” wrote Morningstar’s Susan Dziubinski.
Dziubinski recently published a list of 33 U.S.-listed stocks that Morningstar considers undervalued. Several of those names are QQQ and QQQM holdings. That group includes some well-known giants of the communications services sector such as Facebook parent Meta Platforms (NASDAQ:FB) and broadcasting behemoth Comcast (NASDAQ:CMCSA).
“More than 75% of the stocks in the media, interactive media, telecom, and communication services industries are undervalued. Notably, all of the analyst picks in the communication services sector have wide economic moat ratings, which means we think these companies have significant competitive advantages over the long term,” noted Dziubinski.
Meta and Comcast combine for 4.69% of QQQ and QQQM’s rosters as of July 12. Another destination for undervalued growth fare is healthcare. While that sector represents just 6.5% of the Invesco ETFs’ weights, it is home to undervalued names that reside in these funds. Those include COVID-19 vaccine maker Moderna (NASDAQ:MRNA) and Illumina (NASDAQ:ILMN).
“Healthcare stocks held up reasonably well during the second quarter of 2022; the defensive nature of healthcare stocks played a part in the outperformance, surmises Morningstar sector director Damien Conover. The average healthcare stock is about 7% undervalued, with about one third of the stocks in the sector trading in 4- and 5-star range,” added Dziubinski.
Modern and Illumina combine for almost 1% of QQQ and QQQM. Of course, the ETFs are known for being heavy on tech stocks, some of which are undervalued today, including Dutch chip firm ASML Holding NV (NASDAQ:ASML). At the industry level, some marquee components of the ETFs are now dramatically undervalued.
“Software stocks, in particular, are about 20% undervalued, while semiconductor stocks are trading at a 22% discount to fair value, and hardware stocks, a 12% discount,” concluded Dziubinski.
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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.
