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 Bernstein’s analyst finds helpful is Atlassian Corp PLC (NASDAQ:TEAM) and Datadog (NASDAQ:DDOG), which are both parts of the QQQ and QQQM. Weed is also strong with ServiceNow (NYSE:NOW), but that stock is not in QQQ and QQQM portfolios.
“NOW and TEAM “(Outperform) are ‘value’ stories in our growth sector – long-term strong track records that we expect to continue, each with an aspect of performance that the street doesn’t appreciate,” said the Bernstein analyst.
In what could prove to be good news for investors holding QQQ and QQQMDatadog is Bernstein’s top pick in the software space.
“Weed named Datadog as the company’s top pick in the sector because of its strength CAGR, pre-pandemic growth rates and growing total addressable market. He expects revenue to expand as the company launches projects hampered by Covid-19 and customers grow as the move to the IT cloud accelerates,” reports Samantha Subin for CNBC.
The Bernstein analyst has a $172 price target on Datadog, indicating significant upside from the July 20 close of $100.88.
It is possible to add to the attraction of QQQ and QQQM because the plays on compelling valuations in the software industry are 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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