Confirming a resurgence in large- and mega-cap growth and tech equities, the widely observed Nasdaq-100 Index (NDX) is higher by more than 26% year-to-date.
Of course, that’s good news for exchange traded funds that follow that index, namely the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Perhaps adding to the near-term allure of those ETFs, even with a stellar start to 2023, some of the funds’ components do not have rich valuations.
That’s saying something, because with growth-heavy portfolios and rosters that hold nearly 50% technology stocks, QQQ and QQQM commonly have lofty valuations. Beyond valuation, there are other factors for investors to consider — an endeavor made easier by QQQ and QQQM.
“We remain confident in secular tailwinds in technology, such as cloud computing and rising semiconductor demand,” wrote Brian Colello, technology sector director for Morningstar. “We’d encourage investors to focus on the bright long-term prospects in software as a service and data center expansion, despite the cautious tones that we’re hearing because of macroeconomic concerns.”
Tech Opportunities in QQQ, QQQM
Alone, finding attractive valuations among Nasdaq-100 components is compelling. That proposition is enhanced when the good deals are attached to wide moat names. Adobe (NASDAQ: ADBE), a QQQ and QQQM holding, checks those boxes.
“The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud but comes in lower-cost and free versions. We think the company is properly focusing on bringing new users under its umbrella and believe converting these users will become more important over time,” noted Morningstar analyst Dan Romanoff.
Intuit (NASDAQ: INTU) also resides on the QQQ and QQQM rosters as another attractively valued wide moat. That’s the parent company of TurboTax and Credit Karma, among other brands that are highly recognizable to businesses and consumers. Its QuickBooks offering could be a important long-term growth driver, too.
“Now that Intuit is starting to reap the benefits of playing matchmaker, next up is to take big bets on QuickBooks complements, such as creating an omnichannel sales platform for small businesses. While these buildouts will take time, we think such a direction will help propel the QuickBooks network effect as customers continue to demand all-in-one software to run their businesses,” observed Morningstar analyst Julie Bhusal Sharma.
Semiconductor firm Microchip Technology (NASDAQ: MCHP) is another example of a QQQ/QQQM member firm with decent valuations and wide moat traits.
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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.
