By Philip van Doorn
The past two years have been fruitful for stock investors, but recently the market — especially tech stocks that trade high relative to earnings — has been sensitive to the prospect of rising interest rates.
Analysts at Jefferies wrote in a note to clients on Jan. 22: “After a nearly two-year period of ripping stocks … this pullback has been particularly painful.”
But they see “signals that tend to perk up around bottoms are starting to appear.”
They added: “But in the spirit of ‘the market prices things in before they happen,’ there doesn’t seem to a whole lot of the picture that the investment community is missing.”
If they are right, it means investors have already priced in the uncertainty of a rising-rate environment and geopolitical concerns, and the market should get back on an upward path soon.
Below is a list of stocks in the Nasdaq-100 Index that are highly rated by analysts and expected to rise in price by up to 72% over the next year.
Here’s how far the broad indexes have fallen from their all-time intraday highs:
|Index||Ticker||Decline from high||Close – Jan. 22||Intraday high||Date of intraday high|
|Nasdaq Composite Index||/zigman2/quotes/210598365/realtime COMP||-15%||13,768.92||16,212.23||11/22/2021|
|Nasdaq-100 Index||/zigman2/quotes/210598364/realtime NDX||-14%||14,438.40||16,764.86||11/22/2021|
|S&P 500||/zigman2/quotes/210599714/realtime SPX||-9%||4,397.94||4,818.62||01/04/2022|
|Dow Jones Industrial Average||/zigman2/quotes/210598065/realtime DJIA||-7%||34,265.37||36,952.65||01/05/2022|
Only the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +2.19% and Nasdaq-100 Index /zigman2/quotes/210598364/realtime NDX +2.58% are considered to be in correction territory, with declines of at least 10% from their 52-week intraday highs (which happen to be all-time highs for all four indexes).
The Jefferies team cautioned that it might be too soon to assume the end of last week was the worst of the pullback, but they also gave several reasons that it might be:
“[T]he current 42-day slump since the NDX all-time high on 11/19 is already nearly as long as the tightening-caused ’18 selloff (which lasted 64 days).”
The market is pricing in four increases to the federal funds rate by the Federal Reserve this year, which may be overly aggressive.
Over the past seven interest-rate-increase cycles, “most of the pain tends to occur during the first month,” and the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.30% and Russell 2000 /zigman2/quotes/210598147/delayed RUT +1.05% indexes tend to perform better during the first 12 months following an initial rate increase than they perform in a “typical” 12-month period.
The 12-month performance of the S&P 500 was “positive after every single one of the last seven initial hikes.”
Screening the Nasdaq-100
The Nasdaq-100 Index is made up of the 100 non-financial stocks in the full Nasdaq Composite Index, by market capitalization. It is tracked by the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ +2.56% .
Among the Nasdaq-100, about two-thirds of the stocks are rated “buy” or the equivalent by a majority of analysts polled by FactSet. Narrowing further to a “conviction list,” here are the eight with at least 85% “buy” ratings, sorted by upside potential over the next 12 months implied by consensus price targets among analysts polled by FactSet:
|Company||Ticker||Share “buy” ratings||Closing price – Jan. 21||Consensus price target||Implied 12-month upside potential||Decline from 52-week high|
|CrowdStrike Holdings Inc. Class A||/zigman2/quotes/212513426/composite CRWD||87%||$164.73||$283.30||72%||-45%|
|Amazon.com Inc.||/zigman2/quotes/210331248/composite AMZN||96%||$2,852.86||$4,119.30||44%||-24%|
|Marvell Technology Inc.||/zigman2/quotes/200053236/composite MRVL||87%||$72.55||$102.68||42%||-23%|
|Workday Inc. Class A||/zigman2/quotes/201157610/composite WDAY||88%||$245.69||$327.23||33%||-20%|
|Synopsys Inc.||/zigman2/quotes/208349984/composite SNPS||88%||$303.31||$401.13||32%||-20%|
|Alphabet Inc. Class A||/zigman2/quotes/202490156/composite GOOGL||94%||$2,607.03||$3,360.65||29%||-14%|
|Palo Alto Networks Inc.||/zigman2/quotes/207599953/composite PANW||89%||$483.63||$620.30||28%||-16%|
|Microsoft Corp.||/zigman2/quotes/207732364/composite MSFT||93%||$296.03||$370.77||25%||-15%|
You can click on the tickers for more about each company.
Then read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
To the right, you can see how much the stocks have fallen from their 52-week intraday highs. CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD +3.01% has fared worst, but is also expected by analysts to roar back the most.
Don’t miss: This sector of the S&P 500 is expected to show the fastest sales and dividend growth in 2022 and 2023