There’s no denying that growth stocks rallied sharply off the July lows, but that doesn’t mean the group is now bereft of value.
Many growth stocks are still in the red on a year-to-date basis and trading well off prior 52-week highs. Investors that feel as though they missed the aforementioned rebound in growth stocks need not fret because some analysts believe that some well-known growth stocks remain undervalued.
That could potentially be good news for exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). QQQ and QQQM are relevant in the undervalued growth stock conversation because the Nasdaq-100 Index — the underling benchmark for both ETFs — is home to several high growth names analysts say are still attractively valued.
Count Microsoft (NASDAQ:MSFT) among the revered growth stocks with compelling multiples. That’s relevant because QQQ and QQQM each allocate 10.48% of their respective weights to shares of Microsoft.
“Office 365 retains its virtual monopoly in office productivity software, which we do not expect to change in the foreseeable future. We believe that [Microsoft’s] customers will continue to drive the transition from on-premises to cloud solutions, and revenue growth will remain robust with margins continuing to improve for the next several years,” noted Morningstar analyst Dan Romanoff.
After struggling in the first half of 2022, Amazon (NASDAQ:AMZN) is on the rebound as well, providing some support for QQQ and QQQM. The stock accounts for about 7.1% of the ETFs’ rosters and is the largest consumer discretionary holding in the funds. It’s also attractively valued with multiple upside catalysts.
“From a retail perspective, we expect continued innovation to help drive further share gains. We also look for [Amazon’s] continued penetration into categories such as groceries and luxury goods, which have not previously translated into the same level of success as other retail categories. We see technology advancements in AWS and a bigger push to service enterprise customers as helping to maintain the company’s lead there. Overall, we expect strong revenue and free cash flow growth for years to come,” added Romanoff.
Adobe (NASDAQ:ADBE), which accounts for 1.68% of the QQQ and QQQM portfolios, is another tech/growth behemoth that’s undervalued today.
“We believe switching costs drive a narrow moat for Adobe’s digital experience segment. While we believe in the strong and comprehensive solutions under this umbrella, we note Adobe did not create the markets involved, does not have a first-mover advantage, and does not enjoy any quasi-monopoly status with products here,” concluded Romanoff.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.
