With major equity benchmarks enduring drubbings this year, it’s not uncommon for some market pundits to say that if investors liked a particular stock at a price that was higher six to 12 months ago than it is today, then an investor has to love that same stock at today’s lower price.
Whether or not that constitutes “high conviction” or highly flawed investment advice is up for debate. What’s not up for argument, however, is that some active fund managers remain highly convinced that some of their favorite stocks are deeply discounted today, offer big rebound potential, or both.
“In the top 10 high-conviction purchases list, the buying activity was distributed among a multitude of sectors, including consumer cyclical, communication services, technology, energy, industrials, healthcare, and financial services,” noted Morningstar.
QQQ and QQQM, both of which track the Nasdaq 100 Index, are heavily allocated to some of those aforementioned sectors. For example, each ETF allocates about 51% of its weight to tech stocks, while the communication services and consumer cyclical sectors combine for 29.19% of the funds’ rosters. Healthcare equities account for 7.50% of each ETF.
Some of the ETFs’ most familiar holdings, not surprisingly, are considered high-conviction holdings by a variety of active fund managers. That group includes Google parent Alphabet (NASDAQ:GOOG).
“Online ads account for 85% of Google’s revenue, while the rest flows in from the sale of apps and content on Google Play, YouTube, cloud service and licensing fees, and hardware sales that include Chromebooks, the Pixel smartphone, and smart home products,” added Morningstar. “Alphabet’s moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster internet access to homes (Google Fiber), self-driving cars (Waymo), and more. Alphabet’s operating margin has been 25%-30%, with Google at 30% and other bets operating at a loss.”
Other Nasdaq 100 components that make the list of high-conviction stocks include semiconductor giant Texas Instruments (NASDAQ:TXN) and Elon Musk’s Tesla (NASDAQ:TSLA). Tesla, the largest electric vehicle manufacturer, is the second-largest consumer discretionary holding in the ETFs, at a weight of 3.15%. Texas Instruments is one of more than 15 chip holdings in the two ETFs.
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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.