Nasdaq Exits Bear Market: 5 Top-Ranked Winners

On Feb 15, the Nasdaq posted an eight-week long winning stretch. In doing so, it exited its longest bear market by one measure since 1991. This represents a significant turnaround from the collapse that the index and tech stocks, in particular, suffered in the final quarter of 2018.

Clearly, tech stocks have found favor with investors once again this year. While tech earnings likely lost momentum in the fourth quarter, the FAANG group surprised investors with strong earnings numbers. This has led to their renewed popularity among investors and market watchers alike.

At this point, the Nasdaq is up 12.6% year to date. With even last year’s weakest performers staging a strong rebound, it would make good sense to add select index members to your portfolio to boost profits.

Tech Earnings Lose Pace, FAANG Numbers Impress

As the fourth-quarter earnings season progresses, it is clear that tech stocks have suffered a substantial loss of momentum. Tech sector earnings are on track to decelerate meaningfully in Q4, increasing only 7.6%, after back-to-back quarters of very strong growth.

However, when it comes to the muscular FAANG group, things are substantially different. Facebook (FB - Free Report), in particular, posted blowout earnings, sending its shares soaring at the end of January. Both Amazon (AMZN  - Free Report) and Alphabet (GOOGL - Free Report) also beat earnings estimates as did Netflix (NFLX - Free Report).

Only Apple (AAPL - Free Report) was a bit of a disappointment, but its shares notched gains despite the specter of falling iPhone sales. Both Microsoft (MSFT - Free Report) and IBM (IBM - Free Report) beat earnings estimates easily, indicating that the Nasdaq as a group is firmly back in favor.  

Shares of Facebook, Apple and Netflix are up 24%, 8%, and 33.3%, respectively, year to date. Both Alphabet and Amazon have gained 7.1% over the same period.

Success of Trade Negotiations Hold the Key for Nasdaq

Ultimately, the progress of trade negotiations is crucial for the tech-heavy Nasdaq’s continued ascent. Tech-based companies reap a substantial part of their sales from abroad and from China in particular. Most of them have also set up manufacturing bases overseas.

Possibly, they have the most to lose from a bitter and extended trade war. Trade negotiations are set to continue in Washington this week. Despite the structural issues, which the Trump administration remains inflexible about, investors are increasingly optimistic about a quick resolution to the dispute.

According to fresh reports, China has made a generous offer to tackle the key issue of trade imbalance. The proposal seeks to nullify the country’s entire trade surplus with the United States in six years. The idea could easily catch the Trump administration’s fancy, resolving the crisis in the process.

Our Choices

The Nasdaq has staged an admirable recovery this year after suffering a severe downturn in the fourth quarter of 2018. The much-vaunted FAANG group, which often dictates the index’s performance, is back in favor. Meanwhile, investor optimism over a resolution to the trade dispute with China is growing. 

Adding Nasdaq stocks that have performed admirably year to date to your portfolio seems to be a smart move. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A.

Canadian Solar Inc. (CSIQ - Free Report) is a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications.

Canadian Solar’s Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 30 days. The stock has gained 43.2% year to date.

LexinFintech Holdings Ltd. (LX  - Free Report) is an online consumer finance platform for young adults primarily in China.

LexinFintech’s projected growth rate for current-year earnings is 56.7%. The Zacks Consensus Estimate for the current year has improved 2.2% over the past 30 days. The stock has gained 38.5% year to date.

Sotherly Hotels Inc. (SOHO - Free Report) is a lodging REIT, which is self-administered and self-managed.

Sotherly Hotels’ projected growth rate for current-year earnings is 9.7%. The stock has gained 32.4% year to date.

Zumiez Inc. (ZUMZ - Free Report) is a leading specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women.

Zumiez’s projected growth rate for current-year earnings is 6.5%. The Zacks Consensus Estimate for the current year has improved 1.2% over the past 30 days. The stock has gained 26.3% year to date.

SkyWest, Inc. (SKYW - Free Report) operates as a regional airline in the United States through its subsidiaries — SkyWest Airlines and ExpressJet Airlines.

SkyWest’s projected growth rate for current-year earnings is 9%. The Zacks Consensus Estimate for the current year has improved 5% over the past 30 days. The stock has gained 25.2% year to date.

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