The NASDAQ 100 index has been on a tear in 2024, building on its impressive gains from 2023. Year-to-date, the tech-heavy index is up 20%, driven by enthusiasm around artificial intelligence, cloud computing, and semiconductor advances. Mega-cap tech names like Nvidia, Microsoft, and Apple have led the charge, benefiting from their dominant market positions and exposure to key growth trends.
Despite Lofty Valuations, Value Still Exists
With the index trading at historically high multiples, many investors are understandably concerned about valuations. However, Validea’s guru-based stock screening models are still uncovering pockets of value among NASDAQ 100 constituents. Our systematic approach, based on the strategies of investing legends, helps identify companies with strong fundamentals that may be overlooked by the market.
Let’s examine four NASDAQ 100 stocks currently scoring highly across multiple Validea models:
Applied Materials, a leading semiconductor equipment manufacturer, scores a perfect 100% on our Twin Momentum strategy inspired by Dashan Huang’s research. The model favors stocks exhibiting both strong fundamental and price momentum.
Key factors driving AMAT’s high score:
- Fundamental momentum: AMAT’s combination of earnings growth, profitability metrics, and capital allocation places it in the top 13% of our database.
- Price momentum: The stock’s 12-month return (excluding the most recent month) ranks in the top 6% of our universe.
- Earnings predictability: Despite one earnings decline in the past decade, AMAT’s long-term EPS growth rate of 24.6% demonstrates consistent profitability.
- Strong financials: With a debt-to-equity ratio of 31.74% and the ability to pay off all debt in less than two years using current earnings, AMAT maintains a solid balance sheet.
Retail giant Costco earns a perfect 100% score on our Quantitative Momentum strategy, based on the work of Wesley Gray. This approach seeks stocks with strong, consistent intermediate-term momentum.
Highlights of Costco’s strong showing:
- Robust price momentum: COST’s 12-month minus one-month return of 56.34% places it in the top 10% of stocks.
- Momentum consistency: The stock’s return consistency metric ranks in the top 1% of our database, indicating steady upward movement.
- Earnings growth: Costco has grown EPS at a 14.68% annual rate over the past five years, with consistent year-over-year improvements.
- Attractive valuation: Despite strong performance, COST trades at a reasonable P/E ratio of 27.7, below the 40x threshold our models prefer for large-cap stocks.
Google’s parent company scores highly on multiple Validea models, including a 100% rating from our Patient Investor strategy inspired by Warren Buffett’s approach. This methodology seeks companies with durable competitive advantages and consistent long-term performance.
Key strengths for Alphabet:
- Earnings predictability: Despite one minor dip, GOOGL has grown EPS at a 20.6% annual rate over the past decade.
- High returns on equity and capital: The company’s 10-year average ROE of 18.4% and ROTC of 17.7% demonstrate efficient capital allocation.
- Strong balance sheet: With minimal debt relative to earnings, Alphabet maintains significant financial flexibility.
- Reasonable valuation: Our models project an average annual return of 15.9% based on current fundamentals, an attractive prospect for long-term investors.
Athletic apparel maker Lululemon also scores a perfect 100% on our Patient Investor model, showcasing its consistent growth and strong competitive position.
Standout metrics for LULU:
- Impressive EPS growth: The company has grown earnings at a 20.4% annual rate over the past 10 years.
- Outstanding profitability: LULU’s 10-year average ROE of 27.6% and ROTC of 27.6% far exceed our minimum thresholds.
- Debt-free balance sheet: The company carries no long-term debt, providing significant financial flexibility.
- Compelling expected returns: Our models project potential annual returns between 11.7% and 23.9% based on current valuation and growth prospects.
Conclusion
While the NASDAQ 100’s strong performance has pushed many stocks to lofty valuations, our guru-inspired models continue to uncover companies with attractive fundamentals and reasonable prices relative to their growth prospects. By focusing on time-tested investment criteria, investors can potentially identify opportunities even in a seemingly expensive market.
Research Links
