Ticker Reports for May 24th
NASDAQ 100 vs. NASDAQ Composite: A Detailed Breakdown of NASDAQ
Looking to invest in the tech sector? Then you’ll likely be looking at NASDAQ stocks, but the NASDAQ is a huge exchange, and investors need ways to break down the components for analysis. That’s why the NASDAQ 100 and NASDAQ Composite exist, so investors can have different ways to gain exposure to NASDAQ-listed stocks. However, these indexes have major differences that investors must understand in order to construct proper portfolios. Read on to learn more about the NASDAQ 100 and the NASDAQ Composite.
The NASDAQ Composite includes all the stocks in the NASDAQ 100, plus about 2,500 more. The NASDAQ 100 limits its components to the largest 100 non-finance stocks trading on the NASDAQ exchange, but the Composite includes all public companies trading on the exchange.
These are the 2 most commonly used indexes for NASDAQ investments, and a wide array of ETFs and mutual funds have been constructed around them. But with thousands of companies differentiating the two, it's important to understand the risks and rewards of investing in each.
What Are Stock Market Indexes?
Analyzing every stock would be impossible. The World Federation of Exchanges estimated that as of 2022, over 58,000 public companies exist worldwide, with an estimated 5,000 to 6,000 trading on US-based exchanges. And that doesn’t even take into account penny stocks trading over the counter.
Instead of analyzing each stock individually, investors can use stock market indexes as proxies for the overall market or specific sectors and subsectors. For example, the Dow Jones Industrial Average (DJIA) is one of the oldest stock indexes, consisting of 30 large-cap stocks focused on older sectors like industrials and consumer staples.
The NASDAQ 100 and NASDAQ Composite are both examples of stock market indexes. The NASDAQ Composite is a list of all public companies trading on the NASDAQ exchange, one of the largest public exchanges focusing on tech and innovation. The Composite comprises thousands of stocks, ranging from large-cap tech giants to small-cap startups. The NASDAQ 100 also consists of stocks in the NASDAQ exchange but with a more narrow view and stringent rules for inclusion. All NASDAQ 100 stocks are included in the Composite, but only the biggest non-finance firms find themselves in the NASDAQ 100.
Key Differences Between NASDAQ 100 and NASDAQ Composite
Both the NASDAQ 100 and NASDAQ Composite track stocks trading on the NASDAQ exchange, which was the first major stock exchange to utilize electronic order books and computerized trading. Naturally, a computer-based exchange will lean heavily into the tech sector, but the NASDAQ is a massive exchange featuring more than 2,500 stocks. If you want to successfully invest in NASDAQ, you’ll need to differentiate between these 2 indexes.
Size
The biggest difference between the 2 indexes is obvious as soon as you look at their components. The NASDAQ 100 is aptly named since it features around 100 of the largest companies on the NASDAQ exchange, an adjusted quarterly list. The NASDAQ Composite tracks all companies trading on the exchange, from the small caps to the mega caps.
Sector Allocation
Both indexes weigh holdings based on a market capitalization formula, but the NASDAQ 100 has a few additional rules for inclusion. While the Composite tracks stocks of all different sizes across various sectors, the NASDAQ 100 tracks only the 100 largest non-finance firms trading on the exchange. The index features companies from different sectors, but it’s heavily tilted toward large-cap tech stocks. If you want exposure to a more diverse group of sectors, you’ll likely prefer the NASDAQ Composite’s methodology.
Market Capitalization
Diversification can sometimes be a double-edged sword. While you should never put all your capital into a single stock, an extensive index might include shares of companies you’d prefer to avoid. The NASDAQ Composite is a vast group of companies; many are small startups with risky outlooks. The index is cap-weighted, so small caps never get too much exposure, but the NASDAQ 100 narrows its holdings to only the largest and most successful NASDAQ companies. The differences may seem subtle, but as you’ll see below, the performances of the 2 don’t always track in lockstep.
Historical Performance of NASDAQ 100 and NASDAQ Composite
Investing in indexes like the NASDAQ 100 and NASDAQ Composite has been simplified thanks to the hundreds of ETFs and mutual funds using them in their strategy. The NASDAQ Composite is quoted next to the Dow Jones and S&P 500 on financial media. However, the most common way to track in the NASDAQ 100 is through Invesco QQQ (NASDAQ: QQQ), the $268 billion ETF. Although QQ was launched in 1999, the NASDAQ 100 was first tracked in 1985.
The NASDAQ Composite is 14 years older than the NASDAQ 100 and has experienced its fair share of volatility, from the growth-oriented 1980s to the Dot-Com Bubble of the late 1990s to the tech resurgence of the last decade. Both indexes have traded periods of outperformance since the bursting of the bubble, but the chart below shares how the last 10 years have been dominated by large-cap tech.
The Composite enjoyed a few years of superior performance following the Dot-Com era thanks to the run in finance stocks leading up to the Great Recession. However, the finance-free NASDAQ 100 recovered more quickly in the aftermath as low rates fueled investment in the tech sector.
Since the end of the Great Recession bear market, the NASDAQ 100 has significantly outperformed the NASDAQ Composite. QQQ is up 1400% since March 2009, compared to 998% for the Composite. Both indexes have outperformed the Dow Jones Industrial Average and S&P 500 since the recovery began. Still, the NASDAQ 100 displays the dominance of big tech over the last decade (and with less volatility than the larger Composite).
Which Index Is Right for Your Investment Strategy?
Investing in the incorrect index can drastically alter your performance. While the NASDAQ 100 has outperformed over the last decade, the future is unwritten, and companies excluded from the NASDAQ 100 may be the big winners in the next decade. Focusing on what you can control and invest based on your goals and beliefs is imperative. Consider these 3 factors when building your portfolio:
- Risk Tolerance - Anything NASDAQ-related will be tech-heavy. However, you’ll need to consider the risk profile of each asset. The NASDAQ 100 is less volatile thanks to the absence of small caps, but you may prefer the Composite if you want exposure to smaller firms.
- Asset Allocation - The entrance to the NASDAQ 100 has a strict bouncer: only the 100 largest companies and finance firms aren’t allowed. The NASDAQ Composite has much looser rules, allowing companies of all sectors and sizes. Depending on which sectors you want to limit or increase exposure to, you’ll likely have a distinct preference for 1 of these 2 indexes.
- Timeframe - Finally, time in the market likely matters more for returns than any allocation strategy. If you’re investing for a short-term goal, the volatility of the NASDAQ Composite might make you uneasy, whereas a long-term investor can stomach the ups and downs for broader exposure. Timeline and risk tolerance are linked, so consult an advisor to ensure your portfolio matches your objectives.
Conclusion
The NASDAQ 100 and NASDAQ Composite will always share some similarities, but the differences are distinct enough that your investment strategy will likely prefer one to the other. The NASDAQ 100 is a more centralized group of the top tech firms, while the Composite is broad, diverse and volatile. Make sure you understand the types of companies you’re getting exposure to through each index before investing.
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These 2 Retail Traders Favorites are Nearing Major Breakouts
Shares of Coinbase Global (NASDAQ: COIN) and Robinhood Markets (NASDAQ: HOOD) are capturing significant attention. Both stocks display promising technical patterns indicative of potential breakouts.
Let's delve into the current setup for these two retail favorites and explore why they might be poised for further upside, alongside a snapshot of key fundamentals.
Coinbase Global: Breaking Out of the Downtrend
Coinbase Global, a leading cryptocurrency exchange, has been on an impressive upward trajectory, with shares surging 33% year-to-date. The company reported stellar earnings on February 15, 2024, posting $1.04 earnings per share (EPS), significantly surpassing the consensus estimate of ($0.09). This impressive beat was supported by a 51.6% year-over-year increase in revenue, reaching $953.80 million, well above the forecasted $826.10 million.
Despite the positive earnings and recent bullish momentum in the stock, Coinbase currently holds a "hold" rating from analysts based on 20 ratings, with a consensus price target suggesting a slight downside. However, the technical analysis tells a different story. The stock recently broke out of a bullish wedge downtrend and is now testing its 50-day Simple Moving Average (SMA). Reclaiming and maintaining levels above this critical zone could signal a confirmed breakout, potentially leading to substantial gains.
The company's strong financial performance and the technical breakout make Coinbase a compelling candidate for continued growth in the near term. The current market dynamics and the increasing institutional interest in cryptocurrencies further bolster its prospects.
Robinhood Markets: Hovering Near 52-Week Highs
Robinhood Markets has also been on a tear this year, with its stock up an impressive 55% year-to-date. On May 8, 2024, the company reported its earnings, revealing $0.18 EPS for the quarter, surpassing the consensus estimate of $0.05. Robinhood's revenue soared to $618 million, a 40.1% increase compared to last year's quarter, beating the anticipated $552.74 million.
Analysts have a "hold" rating on Robinhood based on 15 ratings, with a consensus price target that aligns closely with its current trading level. However, the technical picture is notably bullish. The stock is trending above all major moving averages and is consolidating near its 52-week high, just 6% away. This consolidation above rising key moving averages suggests that Robinhood is building a solid base, positioning itself for a potential breakout to new highs.
Institutional and Retail Sentiment
Both Coinbase and Robinhood have substantial institutional backing and remain popular among retail investors. HOOD, a favorite platform for retail traders and a stock to own, has an impressive 93.27% institutional ownership. Similarly, COIN, a stock popular amongst the retail crowd, also has almost 70% institutional ownership. The strong year-to-date performance of both stocks indicates robust market confidence. Additionally, the technical patterns observed in both stocks are often precursors to significant upward movements.
Ready for the Next Leg Higher?
Coinbase and Robinhood exhibit strong bullish formations, impressive year-to-date performance, and resilient upward momentum, presenting compelling opportunities for investors and short-term traders. Coinbase's recent breakout from its bullish wedge and Robinhood's consolidation near its 52-week high suggest that both stocks could be on the verge of significant breakouts.
Investors will want to keep a close eye on these technical levels: For Coinbase, maintaining above the 50-day SMA will be crucial, while for Robinhood, breaking above the consolidation near its 52-week high could trigger the next leg higher. Given their fundamental strengths and technical setups, both stocks appear poised to deliver potential further gains.
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Snowflake is Melting… Up, With a Double-Digit Upside Potential
Snowflake (NYSE: SNOW) shares have been floundering for the last two years, but those days are ending. The Q1 F25 results were solid, pointing to persistent growth, and the hint of increased collaboration with NVIDIA (NASDAQ: NVDA) has juiced the market. NVIDIA, the undisputed leader in AI, is already at the heart of Snowflake’s business because of its microchip accelerators and full-stack approach to artificial intelligence (AI) technology. The hint, dropped in a televised interview, is for an increasing number of AI-powered services to meet widespread demand from clients. The takeaway is that Snowflake’s business is gaining new traction that will sustain its growth far into the future, and the market is noticing.
Analysts' response following the Q1 release is mixed but bullish for the market. The handful of revisions tracked by Marketbeat.com include one lowered, and one reiterated target, but both are above the consensus estimate and imply at least a 25% upside for the stock price. The remaining revisions are all upward; most are above the consensus and lead the market to the high end of the expected range.
Coincidentally, the previously mentioned reiterated target is from Piper Sandler; it is $240 and the highest target tracked. Highlights from the analysis chatter include kudos for strong execution and an outlook for sustained growth and profitability improvement to improve the valuation. Trading at 266 times this year’s earnings outlook and 150 times next year's outlook, this is a highly valued stock that needs to show steady double-digit growth, if not accelerating.
Snowflake Stock: Growth Slows, but Outlook Steady
Snowflake reported a strong quarter with revenue of $828.71 million, rising 33% compared to last and outpacing the consensus estimate by 500 basis points. The strength is due to a 34% increase in product sales, the core segment, which accounts for 95% of the business. Strength in product sales is tied to the growth of large customers and increased market penetration.
Large customers contributing more than $1 million in Trailing Twelve Months (TTM) revenue are up 30% to 485, while the Net Revenue Retention (NRR) or revenue from existing clients is running at 128% of last year’s total. Remaining Performance Obligations (RPO), an indication of future business, is up 46% and suggests growth, despite slowing, will outperform consensus expectations this year.
The margin is the only area of weakness, but it can be overlooked. The company’s Generally Accepted Accounting Principles (GAAP) earnings of $0.14 are $0.03 weaker than expected due primarily to increased Research and Development (R&D) and ad spending. Both items support current operations and the growth outlook, so they are not red flags. The more important metrics, free cash flow, and adjusted free cash flow are positive and up 40% compared to last year.
The guidance is good and potentially cautious. The company raised its product revenue guidance to $3.3 billion, a 24% year-over-year increase and below forecasts. The guidance may be cautious because of the increasing availability of AI-powered services and broad demand.
The Institutions Put a Floor in Snowflake Stock
Snowflake stock is well-supported by institutions. The group owns about 65% of the floated shares and has bought on balance for three consecutive quarters. Their activity coincides with a rising level of support and floor for the market. Assuming this floor holds, shares of Snowflake should move to the top of their trading range soon.
The technical action is mixed. The stock surged by 5% in pre-market trading and opened with a small gap. However, early action after the opening is bearish, and the market moves lower, creating a solid red candle. If the session closes as is, this market could move down to $150 or lower, regardless of what the analysts say. In this scenario, a move to the bottom of the long-term range near $120 is possible.
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