As home to an array of storied growth stocks, the Nasdaq-100 Index (NDX) usually isn’t viewed as a bargain hunter’s paradise. That view is usually accurate. But it also belies the fact that, upon closer inspection, the benchmark is home to some attractively valued stocks. That’s encouraging news for investors considering the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) – two ETFs that follow NDX.
Those funds are classified as large-cap growth funds, a rightfully earned designation. And they are homes to some richly valued stocks. But that doesn’t mean they are entirely bereft of stocks with value traits.
That might be hard to believe given that those ETFs allocate nearly half their weights to the technology sector. That group is rarely known for being inexpensive. However, it’s possible to locate growth at a reasonable price, even in tech and even in QQQ and QQQM.
Some Familiar QQQ Holdings Look Attractively Valued
With nearly half their rosters devoted to tech stocks, QQQ and QQQM feature significant exposure to software companies. That industry is rarely seen as a legitimate value destination. However, some analysts view Adobe (ADBE), the ETFs’ sixth-largest tech holding, as attractively valued.
Thanks to products such as Photoshop, Illustrator, and InDesign, Morningstar assigns a wide moat rating to Adobe. That indicates the company enjoys significant competitive advantages over rivals. The research firm has a $610 fair value on the stock, implying significant upside potential from the April 16 close at $476.22.
“The stock has stumbled this year, but we see plenty of momentum within product innovation, client interest, and revenue creation over the long term. Plus, Adobe’s margins are near the top of the software industry,” noted Morningstar’s Susan Dziubinski.
Another member of the QQQ/QQQM rosters that the research firm views as undervalued today is genomic sequencing firm Illumina (ILMN). It’s one of a dozen healthcare names residing in these Invesco ETFs. The upcoming divestment of its Grail business could be a catalyst for the undervalued shares.
“Our current fair value estimate on Illumina of $228 per share includes a $180 per share value on the company’s legacy sequencing business and about $48 on Grail. Although we’re expecting weak near-term results based on our short-term macro outlook for life sciences, we expect a big rebound in both revenue and profits eventually for the legacy business, considering the sequencing market’s strong prospects, Illumina’s own new product launches, and a return to more-normalized profit margins,” concluded Dziubinski.
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