Outperforming Nasdaq-listed technology stocks.
In 2022, the tech-heavy Nasdaq Composite Index has lagged well behind the other major U.S. indexes, with a negative year-to-date return of 23.6 per cent.
Over a more recent time frame, the Technology Select Sector SPDR Fund (XLK) has continued to rebound from June lows, returning about 9 per cent over the past month, making it the second-best performing S&P 500 sector after consumer discretionary.
This week, we built a stock strategy using equities in the Nasdaq Composite that have strong potential to outperform in a rebounding U.S. equity market.
We started by screening for U.S. stocks with a market capitalization of at least US$5-billion. This will limit our search to the largest and most stable Nasdaq-listed companies.
Next, we searched for stocks demonstrating price momentum across two time horizons. Four-week price appreciation must be at least 5 per cent, and the stock must have a positive one-year price performance.
We were also interested in companies that are indicating revenue growth of at least 10 per cent in the most recent quarter compared with the same period a year ago.
Finally, we screened for the top ranked stocks using our Quantamental rating method. The Quantamental rating is a new proprietary stock ranking methodology developed by Trading Central that covers more than 50,000 stocks worldwide. This metric rates stocks on a scale of one to 10, with 10 being the most bullish and one the most bearish. Quantamental uses a combination of valuation, growth, quality, price momentum and income as key metrics to determine the rating.
The stocks were ranked using a combination of our screening criteria. For informational purposes, we have also included the year-to-date price performance, price-to-earnings ratio, dividend yield (where applicable) and recent stock price.
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.
Topping our list is ON Semiconductor Corp., which has the highest Quantamental rating on our list at 8.06 out of 10. The stock has the best four-week and one-year price performance on our list at 22.3 per cent and 68.7 per cent, respectively. Despite the impressive price performance, the company’s P/E is at 13, which is well below the 24.2 average on our list and the average of the Nasdaq, which sits at 39.2. The company is slated to report second-quarter earnings on Aug. 1.
Digital and analog chipmaker Broadcom Inc. has the highest market cap on our list at US$213.7-billion. The company has the second-highest Quantamental rating, at 7.5, and highest dividend yield at 3.1 per cent.
Integrated circuit maker Analog Devices Inc. has the highest revenue growth, at an impressive 78.9 per cent in its most recent quarter compared with the year-ago period. The company is due to report third-quarter earnings on Aug. 17.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described outperformed the benchmark with a 28-per-cent total return compared with 13 per cent for the Nasdaq Composite.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.