Nasdaq 100 and FANG Index stock prices suggest value at current levels

[MongiIG]

Recent corrections in equity markets suggest the Nasdaq 100 and FANG Index stocks could be offering value at current levels.

Source: Bloomberg

 

Indices Shares Nasdaq-100 United States Stock market Nasdaq

 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Monday 23 May 2022 

The following article looks at the recent moves of tech shares making up the largest part of the Nasdaq 100 as well as the entirety of the FANG Index, assessing whether these counters currently offer a relative value in the market place.

The US FANG Index

The FANG Index is an equally weighted index, rebalanced each quarter, comprising the following stocks:

- Alibaba

- Alphabet (Google)

- Amazon Inc.

- Apple Inc.

- Baidu

- Meta (Facebook)

- Microsoft Corp

- NVIDIA

- Tesla

Why have tech stocks been under pressure?

Since reaching all-time highs in November 2021, the US FANG Index has fallen roughly 40%.

As global monetary policy starts to tighten we have seen equity markets under pressure with interest-bearing assets becoming increasingly more attractive.

In terms of equity markets, tech shares representing mostly stocks primed for growth, have been significant underperformers. A number of these stocks (such as Netflix and Amazon), while beneficiaries of the pandemic and in turn lockdown behaviours, have now seen earnings normalising as the global economy opens up and behaviours change.

Dual-listed stocks (US and China / Hong Kong) have seen further pressure mounting from uncertainty pertaining to Chinese regulations. Supply chain bottle necks from lockdowns in China and the ongoing war (halting of operations in Russia) provide continued disruption to markets and the sector in particular.

Are tech stocks offering at current prices?

But while prices have dropped dramatically, investors will be looking to assess whether these tech sector counters are starting to offer some opportunity in the marketplace, with recent declines possibly providing a relative value in what has been historically a sector primed for growth.

The below table sees data compiled from Refinitiv Workspace as of the 23rd of May 2022. The data pertains to the stocks currently making up IG’s FANG Index and looks at a consensus of long-term broker ratings, price targets, and ascertains the level at which current prices trade at a discount or premium to these targets.

Source: Refinitiv Workspace

 

With the exception of Netflix (which carries a ‘hold’ recommendation) all the constituents of the US FANG Index carry a long-term ‘buy’ rating.

Alibaba, NVIDIA and Netflix currently trade at the deepest discounts to the consensus of long-term analyst price targets. Alibaba, BAIDU and Meta trade on the most conservative forward price-to-earnings (P/E) multiples of the index constituents, while Amazon and Tesla currently trade on the more expensive side in terms of the P/E valuation metric.

US FANG Index – technical view

Source: ProRealTime

 

IG’s US FANG Index highlights the recent carnage within the tech sector. Short, medium, and long-term trends for the index remain down at present. However, we have started to see some indications that the index could be setting up for a short to medium-term rebound.

The highlighted area on the chart is considered a falling wedge pattern. The pattern suggests that the short to medium downtrend could be losing momentum and setting up for a rebound. Traders will want to see an upside break above the 5150 resistance level to confirm the near-term reversal as ‘in play’. In this scenario, 5725 and 6405 become upside resistance targets from the move.

Should the index price instead move to close below wedge support, the bullish indications would be deemed to have failed and instead a downside continuation assumed, with 4125 the next level of support considered.