One of the widely discussed results of the rise and fall of technology stocks this year is that some growth and tech-heavy industries are now crowded with previously valued stocks that are now more attractive. many.
Software is one of the prime examples of this, and for investors who don’t want to stock pick, some exchange traded funds are relevant in this field. Those include Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Both ETFs track the Nasdaq-100 Index (NDX), and each allocates 50.11% to technology stocks. Within that group is a range of software equities, some of which are more attractively valued today than they have been in many quarters.
“While the ride can be stomach churning, we begin coverage today remembering that even the scariest roller coasters pull up, if they are well built,” Bernstein analyst Peter Weed wrote in a note to clients Tuesday. “Cloud SaaS’s ride appears to be nearing the bottom of historical markers, including evidence of strong fundamentals versus what investors desire: a growing cash engine.”
Among the software stocks the Bernstein analyst finds helpful are Atlassian Corp PLC (NASDAQ:TEAM) and Datadog (NASDAQ:DDOG), which are both QQQ and QQQM components. Weed is also strong on ServiceNow (NYSE:NOW), but that stock is not in the QQQ and QQQM portfolios.
“NOW and TEAM (Outperform) are ‘value’ stories in our growth sector – long-term solid track records that we expect to continue, each with an aspect of performance that is undervalued by the street,” the analyst said. Bernstein.
In what could prove to be good news for investors holding QQQ and QQQM, Datadog is Bernstein’s top pick in the software space.
“Weed named Datadog the company’s top pick in the sector due to its strong CAGR, pre-pandemic growth rate and growing total addressable market. He expects revenue to expand as the company launches projects hampered by Covid-19 and customers grow as the IT cloud shift accelerates,” Samantha Subin reported for CNBC.
The Bernstein analyst has a $172 price target on Datadog, indicating significant upside from the July 20 close of $100.88.
Potentially adding to the appeal of QQQ and QQQM as plays at compelling valuations in the software industry is the point that cloud stocks aren’t the only ones using lower multiples. The same is true of some cybersecurity stocks, some of which reside in Invesco ETFs.
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The opinions and predictions expressed herein are Tom Lydon’s alone, and may not actually occur. The information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.