Peter Ashton is vice-president of client services at Recognia Inc.
What we are looking for
With the Dow Jones industrial average and the S&P 500 hovering near all-time highs, one might think there are few opportunities in the U.S. market. However, the Nasdaq tells a different story. After peaking at 4,371 on March 6, the Nasdaq composite index has declined approximately 6 per cent. Many of the momentum names that had been driving the index higher have also been hit hard, declining 40 per cent and more in some cases.
Has the Nasdaq selloff created buying opportunities for investors?
We will be using Recognia Strategy Builder to search for high-beta Nasdaq stocks that have sold off and are now showing signs of being oversold.
We begin by setting a minimum market capitalization threshold of $10-billion (U.S.) to focus on larger, more established Nasdaq stocks. Next, we will look for companies which have declined significantly in recent weeks. We will look for stocks trading at least 10 per cent but no more than 40 per cent off their 52 week highs.
In order to focus in on the more volatile, “momentum” names, we will specify a beta of 1.1 or more. This will give us companies whose price volatility is at least 10 per cent more than that of the overall market.
Finally, to find stocks that are showing signs of being oversold, we will use a technical indicator known as MACD (moving average convergence/divergence). We will consider only stocks that have had a recent MACD event flagging an oversold condition.
More about Recognia
Recognia is a global leader in actionable technical and quantitative analysis. Accessible by more than 20 million traders and investors globally, Recognia covers 85 exchanges worldwide, and analyzes 65,000 instruments daily, including stocks, indexes, ETFs, currencies and futures.
What did we find?
Regeneron Pharmaceuticals Inc. has the highest beta on our screen at 2.16. Back in March, the stock traded as high as $350 (U.S.) but can currently be bought for less than $300. Several technical indicators, including momentum and MACD, are all showing oversold signals today.
Amazon.com Inc. boasts the highest market cap on our screen of $138.6-billion. The stock is now trading 26 per cent off its 52-week high.
Western Digital Corp. is trading about 12 per cent off its 52-week high and is showing numerous technical oversold signals.
Recognia Strategy Builder provides a backtesting 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 had a 42.2 per cent annualized return compared to 19.3 per cent for the Nasdaq composite index and 21.4 per cent for the Nasdaq 100.
Investors should conduct further research before investing in any stocks shown here.
Higher beta Nasdaq-listed stocks
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