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What are we looking for?

Tech stocks that could benefit from a rebound in the Nasdaq Composite Index.

The Nasdaq, which covers most of the largest U.S. technology companies, has lagged behind the major indexes with a year-to-date return of 5.4 per cent compared with the S&P 500, up 11.35 per cent, and the Dow Jones Industrial Average, with a gain of 12.6 per cent. The Nasdaq has a history of mixed returns in June. Over the past 10 years, the index closed positive 60 per cent of the time in June, with an average return of 1.6 per cent. July, on the other hand, has been a great month for the Nasdaq; it has finished July higher 89 per cent of the time over the same 10 years, with an average return of 3.3 per cent.

Is the Nasdaq set for a rebound after the recent pullback? This week we dive into the tech sector using Trading Central’s new TC Quantamental rating to search for outperforming stocks listed on the Nasdaq.

The screen

We will start by screening for U.S. stocks with a market capitalization of at least US$10-billion. This will limit our search to the largest and most stable companies on the Nasdaq with correspondingly higher quality revenue and earnings streams.

Next, we will search for stocks demonstrating price momentum across multiple time horizons. Four-week price performance must be 5 per cent or above, one-year price performance above 20 per cent and a year-to-date performance better than 5 per cent.

Finally, we will scan for the top ranked stocks using the TC Quantamental rating, a proprietary stock-ranking methodology developed by Trading Central that covers more than 50,000 stocks worldwide. Stocks are ranked on a scale of one to 10, with 10 being the most bullish and one the most bearish. TC Quantamental ranking uses a combination of valuation, growth, quality, price momentum, and income (dividend yield, dividend growth rate and payout ratio) as key metrics when ranking a company.

For informational purposes, we have also included the recent stock price, price-to-earnings, dividend yield and revenue growth in the most recent quarter compared with the same quarter a year ago.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

Select Nasdaq-listed technology stocks 

CompanyTickerMkt. Cap. (US$ Bil.)4W Price Perf. (%)1Y Price Perf. (%)YTD Price Perf. (%)TC Quanta. RatingP/EDiv. Yld. (%)Rev. Grth. (%)Recent Price (US$)
Broadcom Inc.AVGO-Q193.46.753.08.27.0548.83.113.6465.15
Texas Instruments Inc.TXN-Q176.25.049.916.27.0029.12.228.8186.04
Lam Research Corp.LRCX-Q92.66.2126.237.46.9626.80.853.7635.91
Applied Materials Inc.AMAT-Q127.16.7140.561.16.7626.50.741.1136.18
NXP Semiconductors NXPI-Q57.39.291.530.76.7237.31.127.0202.38
MKS Instruments Inc.MKSI-Q10.35.670.723.96.6723.20.529.5182.29
Analog Devices Inc.ADI-Q60.76.935.311.46.4828.01.726.1161.66
ASML Holding NVASML-Q282.55.094.738.26.3849.10.678.8546.5
Maxim Integrated Prod.MXIM-Q27.37.567.714.66.0235.6n/a18.499.99
Logitech InternationalLOGI-Q21.916.4127.335.15.9523.30.7116.6130.78
Nvidia Corp.NVDA-Q418.116.091.328.55.9369.20.183.8673.12
Teradyne Inc.TER-Q21.
Intuit Inc.INTU-Q121.713.653.517.35.4956.90.539.0442.16
Microchip TechnologyMCHP-Q42.56.842.912.65.2664.91.110.6151.81

Source: Trading Central 

Topping our list is semiconductor maker Broadcom Inc. , which has the highest TC Quantamental Rating at 7.05. Of the five metrics that make up this rating, three stood out. The income metric scored 8.7 out of 10 owing to the dividend yield being above 3 per cent. Quality, which measures metrics such as operating margin, debt to equity and return on equity, ranked 8.3. Finally, price momentum scored 7.2 out of 10 with a 53-per-cent one-year total return.

Nvidia Corp. , a graphics-chip maker, just broke out to a new record high this week. The company has the highest market cap on our list at US$418-billion. It scored a 5.93 out of 10 in our TC Quantamental rating with the highest metric being quality, which scored 8.5. The stock is up 28.5 per cent year to date.

(Note that neither Apple Inc. nor Microsoft Corp. made the list, both having missed at least one of our three minimum price performance metrics; however they are indicating TC Quantamental scores of 6.49 and 6.46, respectively.)

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 37.8-per-cent total return compared with 22.7 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.

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