A Familiar Tech-Heavy ETF Is Slumping, but Could be Buying Opportunity

Technology stocks are among the worst-performing names as investors retreat from equities due to the coronavirus pandemic and the Invesco QQQ Trust (NASDAQ: QQQ) is one of the ETFs telling this tale of woe.

It’s hard to ignore the current state of affairs in the most prominent sector in the U.S., one that accounts for over 45% of QQQ’s roster, but investors may want to consider the recent dip into bear market territory as a potential buying opportunity in QQQ.

Companies with high foreign or Chinese market exposures exhibited similar drawdowns to the broad market. Investors, though, should note that the technology sector was the area with the largest international and Chinese revenue exposures, followed by communication services. The good news with QQQ is that its load with cash-rich companies, such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL).

“As of last November, those four companies had over $400.2 billion in combined cash reserves. Including those four, only six S&P 500 companies have larger market values than that cash hoard,” reports InvestorPlace.

Near-Term Pain, Long-Term Opportunity

The effects of the coronavirus are already manifesting themselves in one of the global tech giants, which puts certain ETFs on watch. Lower iPhone supply globally and weakened China demand will hurt Apple’s revenue projections for the fiscal second quarter. However, the iPhone maker confirmed Thursday it has reopened all of its retail stores in China.

With the capital markets in the throes of more panic selling amid the coronavirus outbreak, it’s a good time for bargain hunters to load up on technology names that have been driving the extended bull market the past decade. Low prices in tech giants like Apple can allow investors to get in on a buy-and-hold strategy for the next 5 to 10 years, which puts exchange-traded funds (ETFs) that hold these names on watch.

Importantly, particularly for investors willing to wager stocks bounce back this year, many of QQQ’s marquee holdings have plenty of near- to medium-term catalysts.

“Additionally, many of QQQ’s largest holdings are catalyst-rich names over the course of 2020,” according to InvestorPlace. “Whether it be 5G iPhones with Apple, the growth of cloud computing with Amazon and Microsoft, the video game hardware upgrade cycle (Microsoft) and much more, there are more stories to be told with QQQ, potentially indicating the current state of affairs with the ETF won’t last throughout this year.”

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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.