Nasdaq key to markets, more than Big Tech

ALL eyes are on Nasdaq. The Nasdaq stock market is home to the big technology companies — the likes of Apple and Microsoft — that dominated the market and provided most of its oomph in 2019 and 2020.

In the two years ended in December, the Nasdaq 100 Non-Financial Index advanced more than 103 percent, nearly quadruple the gain in the New York Stock Exchange Composite.

This year, the worm has turned. The NYSE Composite has gained 8.2 percent, while the Nasdaq 100 has limped to a 0.38 percent return.

If Moses (the technology giants) can’t lead the market into the Promised Land, will there be a Joshua to take his place?

That’s the question of the hour.

New leadership?

I hope that the new leaders will be solid value stocks, including a lot of industrials and financials.

History shows that market leaders don’t have to be big tech companies. Energy companies led the parade in 2007, with a 34 percent return. In 2012, financial stocks were the leaders, up almost 29 percent. In 2013, consumer discretionary stocks scored a 43 percent gain.

So there’s no law that says tech stocks have to be in the driver’s seat. And yet …

Technology stocks have been the leaders in three of the past four years. Over the past 14 years, according to a tabulation by Novel Investor, tech stocks have averaged a 15.2 percent return, the best among the 11 Standard & Poor’s sectors.

Only twice in the past 14 years has the technology sector shown a decline. On both occasions, 2008 and 2018, the overall market was also down, as measured by the S&P’s 500 Index.

Predictions may be folly, but here’s mine for the Nasdaq in the coming 12 months. The big (mostly tech) stocks in the Nasdaq 100 will achieve about a 7 percent return. The broader Nasdaq Composite will be up 11 percent.

My favorites

My favorite stocks on the Nasdaq today include America’s Car-Mart Inc. (CRMT), LGI Homes Inc. (LGIH), and StoneX Group Inc. (SNEX).

America’s Car-Mart specializes in selling used cars to customers with shaky credit, mainly in the South. The company is astute at pricing both the cars and the loans; it has profits in each of the past 18 years.

LGI Homes, more than any other homebuilder I know, specializes in lower-cost starter homes.

StoneX Group’s specialty is clearing commodities and currency trades. I expect the commodities business to heat up as inflation increases over the next two to three years.

Among the biggest, most popular stocks on Nasdaq, I continue to like Apple and Alphabet Inc. (GOOGL). I consider Microsoft too pricey at 35 times earnings. The same goes for Amazon.com (AMZN) at a 73 multiple and Facebook at 26.

The record

This is the 15th column I’ve written that includes my favorite stock picks on Nasdaq. My average 12-month gain on the first 14 columns was 21.2 percent. That compares with 19.3 percent for the Nasdaq Composite Index over the same periods and 14.1 percent for the S&P’s 500 Index.

My best pick last year was LGI Homes, up 230 percent. My worst, Exchange Bank of Santa Rosa, rose 39 percent. In between, Johnson Outdoors Inc. (JOUT) returned 187 percent, Investors Title Co. (ITIC) 57 percent and Kimball International Inc. (KBAL) 45 percent.