The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are prime examples of mega-cap growth exchange traded funds, but another factor — that being quality — could give investors good reason to examine these ETFs.
While quality investing comes in many forms, it is useful in turbulent market environments. Companies with enviable quality traits often sport strong balance sheets and are improving efficiencies. Several well-known QQQ and QQQM member firms check those boxes.
Take the case of Facebook parent Meta Platforms (NASDAQ: META). While that company recently announced sizable layoffs, some analysts are bullish on the name relative to some other QQQ and QQQM holdings, such as Alphabet (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN).
“We are taking a more conservative approach with forward ad growth and if the consumer does weaken, we think META is better positioned than GOOGL (which hasn’t reduced costs as aggressively) and AMZN (where retail profitability improvement is partially predicated on growing consumer spend and macro uncertainty could push out the AWS growth improvements),” wrote Morgan Stanley analyst Brian Nowak in a note out Tuesday.
Meta’s recent layoffs signal CEO Mark Zuckerberg’s desire to right-size the company’s headcount. Nowak is hopeful that could be a sign to rival tech giants that it’s time to emphasize a disciplined approach to expenditures.
Amazon is participating in that trend, announcing on Monday that it’s laying off another 9,000 workers in addition to a previously announced reduction of 18,000 workers.
“The overriding tenet of our annual planning this year was to be leaner while doing so in a way that enables us to still invest robustly in the key long-term customer experiences that we believe can meaningfully improve customers’ lives and Amazon as a whole,” said CEO Andy Jassy in a note to employees.
Obviously layoffs sting, but at a time when banking crises and the specter of recession are spooking some market participants, companies turning prudent on the spending front could be attractive to some investors.
As for Google parent Alphabet, Morgan Stanley’s Nowak sees reasons to be constructive on that name, too.
“We also remain confident GOOGL faces more manageable incremental costs. We see management focused on durably reengineering the cost base and see GOOGL working to improve AI compute cost efficiency at the infrastructure, model and application layer, which builds confidence that margins won’t compress over the long term,” he wrote.
Amazon, Alphabet, and Meta combine for over 17% of the QQQ and QQQM portfolios.
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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.
