Following last year’s rally in technology stocks, the consensus is that the sector is richly valued. That doesn’t mean the upside is limited, but it does imply that valuation-sensitive investors should tread carefully. Fortunately, the universe of attractively valued technology equities isn’t as limited as some market participants believe. In fact, some exchange traded funds are home to a surprising number of attractively valued tech names. That group includes the Invesco NASDAQ Next Gen 100 ETF (QQQJ ).
QQQJ follows the NASDAQ Next Generation 100 Index, which is a derivative of the famed Nasdaq-100 Index (NDX). NDX has a reputation for frequently being home to plenty of high-valuation names. The same currently isn’t true of QQQJ and its underlying benchmark.
QQQJ Has Tech Deals
The $664.1 million QQQJ, which debuted in October 2020, is less tech-heavy than NDX-linked ETFs. But the Inveso fund still allocates 34.40% of its weight to that sector – by far its largest sector weight. That’s alright at a time when some of QQQJ’s tech holdings are sporting compelling valuations.
One example is cloud-based software provider DocuSign (DOCU), which permits users to use e-signatures on a variety of electronic devices.
“As use cases expand, we still expect the current primary driver of growth, the e-signature solution, to continue to grow rapidly thanks to the company’s entrenched leadership position and the more unpenetrated market,” noted Morningstar analyst Dan Romanoff. “Underlying the larger picture is that the company still offers free trials and self-service for pain-free test drives. We already see strong adoption in the more than 1 million paid customers, with 88% involving a sales rep. And hundreds of customers already driving annual contract value in excess of $300,000 annually.”
Zebra Technologies (ZBRA), which helps clients manage logistics and supply chains, is another example of QQQJ holdings that are currently discounted.
“We expect Zebra to benefit from ongoing secular trends toward digitization and automation, notably in omnichannel retail and e-commerce, which have been accelerated by the COVID-19 pandemic and is a tailwind for the firm,” observed Morningstar analyst William Kerwin.
Zoom Video Communications (ZM), Skyworks Solutions (SWKS), and Teradyne (TER) are other examples of QQQJ holdings that Morningstar views as attractively valued. Combined, the quintet of stocks mentioned here represents over 5% of the QQQJ portfolio. The Invesco fund is home to 106 stocks overall.
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