Sell-side analysts aren’t infallible, but they provide important insight into a variety of companies across all sectors. Those observations can be vital for market participants looking to get a handle on a firm’s top and bottom line outlooks.
There are currently more than 11,000 analyst ratings on S&P 500 member firms — a dizzying amount to be sure. The bulk of that coverage is assigned to large- and mega-cap companies, including those dwelling within exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Using analyst ratings as the barometer, QQQ and QQQM could be pertinent over the near term. Watch this in particular as investors assess positioning ideas for the fourth quarter. The reasoning is simple. QQQ and QQQM are heavily allocated to some of the sectors analysts are most bullish on. They are also lightly allocated to the groups with lower percentages of “buy” ratings.
Good News for ETFs QQQ, QQQM
In terms of “bad” news regarding percentage of “buy” grades, the consumer staples sector ranks the lowest. That’s not of much consequence to these two ETFs, as they devote just 6.51% of their portfolios to that group.
“On the other hand, analysts are most pessimistic on the Consumer Staples sector. This sector has the lowest percentage of Buy ratings (45%). The Consumer Staples sector also has the highest percentage of Hold ratings (47%) and is tied with the Industrials sector for the highest percentage of Sell ratings (8%),” noted FactSet’s John Butters.
Industrial stocks account for just 4.86% of the QQQ/QQQM rosters, which is in theory more good news. In better news, communication services stocks account for almost 16% of the ETFs’ lineups. That’s important because stocks in that group are 58% buy-rated, a percentage exceeded only by the energy sector.
Consumer discretionary is home to a rising number of “buy” grades. It is the third-largest sector in the Invesco ETFs, behind technology and communication services.
“After a decline during the month of July (to 54.0% from 54.8%), the overall percentage of Buy ratings has increased from the end of August through today (to 54.4% from 54.0%). At the sector level, five of the 11 sectors have seen an increase in their percentage of Buy ratings since August 31, led by the Consumer Discretionary sector (to 57.0% from 55.5%),” added Butters.
Of the 10 stocks with the highest percentage of “buy” ratings from analysts, two are Amazon (NASDAQ: AMZN) and Nvidia (NASDAQ: NVDA), which combine for 10% of QQQ and QQQM.
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