The tech-heavy Nasdaq Composite Index has been hit hard since the start of the year amid the stock market rout. The benchmark logged in its worst week since October 2020, plunging 7.6% and is now more than 14% below its November record close. Rising bond yields in anticipation of the Federal Reserve’s tightening monetary policy took all the sheen from the index.
Invesco QQQ QQQ, which serves as a proxy to the index, has plunged 11.6% so far this year. Though most of the stocks in QQQ’s portfolio also declined with the ETF, there are a few stocks that showed strength. These include Activision Blizzard (NASDAQ:ATVI) ATVI, Pinduoduo (NASDAQ:PDD) Inc. PDD, Baidu (NASDAQ:BIDU) BIDU, Electronic Arts EA and JD (NASDAQ:JD).com JD.
Most of the decline stemmed from the tech sector sell-off. This is because the tech sector relies on easy borrowing for superior growth and its value depends heavily on future earnings. A rise in long-term yields lowers the present value of companies’ future earnings, sparking fears of overvaluation (read: 5 Cheap ETFs to Play Amid Tech Stocks' Worst Start Since 2016).
Additionally, the Fed turned more hawkish than expected in the last minute. The policymakers signaled three rate increases this year and three in the following year as inflation concerns deepened. The probabilities of a March interest rate hike of 0.25% surged to 72%, according to fed futures trading contracts. This will continue to push the yields higher, dampening the appeal for growth stocks and thus pull the Nasdaq index down.
Let’s take a closer look at the fundamentals of QQQ.
QQQ in Focus
Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Information technology accounts for 50.3% of the assets, while communication services and consumer discretionary make up for 18.5% and 16% share, respectively (read: Bet on Inverse ETFs as Nasdaq Enters Correction Territory).
Invesco QQQ is one of the largest and most-popular ETFs in the large-cap space with AUM of $196 billion and an average daily volume of around 52 million shares. Invesco QQQ charges investors 20 bps in annual fees. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Below we have highlighted the above-mentioned five stocks in the ETF with their respective positions in the fund’s basket.
Top-Performing Tech Stocks in QQQ
Activision Blizzard is a leading developer and publisher of console, online and mobile games. The company’s Call of Duty is one of the most popular gaming franchises globally. It makes up for 0.5% share in the fund’s basket and has gained 22.3% so far this year.
Activision Blizzard earnings are expected to decline 1.8% this year. The stock carries a Zacks Rank #5 (Strong Sell) (read: 5 ETFs to Cash in on Microsoft-Activision Deal).
Pinduoduo provides an e-commerce platform allowing users to participate in group buying deals, primarily through Tencent's Wechat app. Pinduoduo has climbed 7% so far this year and accounts for 0.2% in the fund’s basket.
PDD has an estimated earnings growth of 170.6% for this year and a Zacks Rank #1 (Strong Buy). Pinduoduo carries a top Growth Score of A. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Baidu is a Chinese-language Internet search provider. It offers a Chinese language search platform and conducts its operations principally through Baidu Online Network Technology Co., Ltd., a network of third-party websites and software applications. BIDU has gained 5.4% so far this year and accounts for 0.3% in the fund’s basket.
Baidu is expected to see earnings decline of 8.6% for this year and has a Zacks Rank #3 (Hold). It has a Momentum Score of B.
Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). The stock has surged 5.4% so far this year and has 0.3% exposure in the fund’s basket.
Electronic Arts has an estimated earnings growth of 22.6% for the fiscal year (ending Mar 2022) and has a Zacks Rank #2.
JD.com operates as an online direct sales company in China. The company, through its Website www.jd.com and mobile applications, offers a selection of authentic products.
JD.com jumped 4.8% in the same timeframe and its earnings are expected to increase 29.3% for this year. The stock makes up for 0.4% of assets in QQQ and has a Zacks Rank #5. JD.com has a Growth Score of B.
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Activision Blizzard, Inc (ATVI): Free Stock Analysis Report
Baidu, Inc. (BIDU): Free Stock Analysis Report
Electronic Arts Inc. (NASDAQ:EA): Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
JD.com, Inc. (JD): Free Stock Analysis Report
Pinduoduo Inc. Sponsored ADR (PDD): Free Stock Analysis Report
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