The NASDAQ 100 has performed exceptionally well over the past decade, driven by the strong performance of technology companies that make up a significant portion of its holdings. The index is comprised of the top 100 largest non-financial stocks listed on the NASDAQ stock exchange.
Looking at a 10-year chart of the NASDAQ 100’s performance against the S&P 500 is all you need to do to understand just how well it has performed. And this is over a period where the S&P 500 has outperformed almost everything else.
With a run like this, you might assume that there wouldn’t be many stocks that would pass fundamental strategies like those we run at Validea.
And you would be correct.
But that doesn’t mean there aren’t any.
Here are five stocks that score highly based on the fundamental investing models used by Validea, which are based on the strategies of legendary investors.
Top NASDAQ 100 Stocks According to Validea’s Models
Lululemon is a retailer of athletic apparel, known for its yoga-inspired clothing. The stock scores a perfect 100% on Validea’s Warren Buffett-based “Patient Investor” strategy. This model looks for companies with predictable, consistent earnings growth, which Lululemon has demonstrated with earnings per share increasing in 8 of the past 10 years. The company also boasts a high average return on equity of 27.6% over the past decade, indicating a strong competitive advantage. Additionally, Lululemon has no long-term debt, a positive for the conservative Buffett approach. The stock also scores well on the Peter Lynch-based strategy, thanks to its reasonable P/E-to-Growth ratio of 0.97.
Applied Materials is a leading supplier of semiconductor manufacturing equipment. Like Lululemon, it scores a perfect 100% on the Buffett-based approach. The company has grown earnings consistently, with EPS increasing in 9 of the past 10 years. It also has a high average return on equity of 35.3% over the past decade. Applied Materials’ debt is also manageable, with earnings capable of paying off all debt in less than two years. The stock also gets a 94% score from the “Twin Momentum Investor” model, which looks for companies with strong price and earnings momentum.
Google’s parent company Alphabet is a top pick for several of Validea’s strategies. It gets a perfect score from the Buffett model, with consistent earnings growth, high returns on equity (18.2% 10-year average), and reasonable debt levels (earnings could pay off all debt in under two years). Alphabet also scores an 88% from the “P/B Growth Investor” model, which favors growth companies trading that have high and consistent returns on assets and strong investment in the future via capital expenditures and research and development.
Retailer Costco is another favorite of Validea’s models. It earns a perfect score from the James O’Shaughnessy-based “Growth/Value Investor” model, which looks for companies with persistent earnings growth, strong relative strength, and reasonable Price/Sales ratios. Costco has grown earnings in each of the past five years, has a relative strength of 84, and trades at a Price/Sales ratio of 1.31, passing all the key tests of this strategy. The stock also gets an 80% score from the “Price/Sales Investor” approach based on Kenneth Fisher’s strategy, thanks to its reasonable Price/Sales ratio and low debt levels.
Tech giant Apple is a top pick for several Validea models. It scores a perfect 100% on the Buffett-based approach. The company has grown earnings consistently (EPS up in 8 of past 10 years), generates high returns on equity (83.6% 10-year average), and produces substantial free cash flow ($5.35 per share). These factors indicate a strong competitive advantage and shareholder-friendly management. Apple also gets an 87% score from the Peter Lynch-based strategy, which focuses on the P/E-to-Growth ratio (at 1.31, Apple’s PEG is considered acceptable under this model).
Despite the NASDAQ 100’s huge run, these five stocks all earn high marks from Validea’s guru-based stock screening models. Each offers attractive fundamentals, including strong earnings, high returns on capital, and solid balance sheets. For those looking for fundamentally attractive stocks among NASDAQ 100 names, these five stocks could be a great place to start.
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