Rare Valuation Opportunities Afoot in Some Megatrends ETFs

Equities are off to a dismal start to 2022, with high-growth and technology stocks, particularly shares of unprofitable companies, ranking among the worst offenders.

With some major growth and technology indexes in or flirting with correction territory, a slew of exchange traded funds are feeling the heat. Those include funds dedicated to disruptive themes, such as the WisdomTree Cloud Computing Fund (WCLD), the WisdomTree Cybersecurity Fund (NASDAQ: WCBR), and the WisdomTree BioRevolution Fund (WDNA).

Cloud computing, cybersecurity, and biotech/genomics stocks typically trade at rich valuations owing to impressive growth potential, and if there’s a silver lining to the recent slump in these industries, it’s that there are now rare valuation opportunities available. Importantly, discounts can be had while long-term fundamentals in these groups remain sturdy.

“The WisdomTree Cloud Computing Fund (WCLD) is currently valued at 11.5x price-to-sales, its lowest level since the first few months of the COVID-19 pandemic. Its premium relative to the Russell 1000 Growth Index is 102.0%, within 2% of its historical minimum of 100.8%,” says WisdomTree analyst Kara Mariciscano. “While WCLD’s valuation premium has meaningfully contracted, its expected revenue growth over the benchmark Index has not. Over the last year, WCLD’s revenue growth has consistently been forecasted at an average of 1.7x that of the Russell 1000 Growth.”

WCBR merits a valuation-based look, too. After all, cybercriminals aren’t taking holidays simply because cybersecurity stocks are slumping. Likewise, companies and governments aren’t likely to rein in cybersecurity spending simply because some investors are souring on the group.

“Like WCLD, The WisdomTree Cybersecurity Fund (WCBR) has been hit hard by the shift in the market and is trading at a similar level of 11.2x price-to-sales, roughly double the valuation of the Russell 1000 Growth Index,” adds Marciscano.

Interestingly, while biotechnology stocks are sliding, WDNA hasn’t tumbled as much as stablemates WCBR and WCLD. However, following 2021, when a massive gap between large- and small-cap biotech emerged, the time could be right to at least give WDNA a glance.

“That level of all-cap outperformance has not occurred in at least the last decade and marks a sharp reversal from small-cap outperformance of 32 percentage points in 2020,” observes Marciscano. “In our view, this environment creates opportunity for WDNA, with balanced size exposure across small-, mid- and large-cap companies, to benefit from a potential small- to mid-cap biotech rebound in 2022.”

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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.