On Nasdaq, I Prefer The Less-Famous Stocks

The Nasdaq Rally and Retreat

The Nasdaq Stock Market has been a beacon of performance over the past two years, leading the charge in a remarkable rally. However, the tide has turned, and Nasdaq is now at the forefront of a downturn. This shift underscores the volatile nature of the tech-heavy index, which is home to both major technology stocks and numerous smaller entities. The Nasdaq Composite Total Return Index saw impressive gains of over 44% in 2023 and 29% in 2024, but from its peak on February 19, 2023, through March 14, 2024, it has retraced over 11%. While some may see this pullback as a signal to buy, the timing is crucial. The author suggests waiting for a clearer sign, such as two consecutive weeks of stability in the Nasdaq Composite Index, before considering entry. This prudence is key in navigating the current uncertain market landscape.

East West Bancorp: A Strong Banking Option

East West Bancorp (EWBC) stands out as a compelling investment, offering stability and growth potential. Based in Pasadena, California, EWBC has carved a niche in financing film and television projects, alongside being one of the few U.S. banks licensed to operate in China. Over the past decade, the bank has demonstrated robust revenue growth at an annual rate of 14%, a testament to its strategic positioning. Currently trading at around $88 per share, EWBC is attractively valued at approximately 10 times earnings and 1.6 times book value. While U.S.-China relations remain tense, any improvement could significantly bolster EWBC’s prospects, making it a wise long-term investment.

Diamondback Energy: A Leading Permian Player

Diamondback Energy (FANG) emerges as a top pick in the energy sector, particularly with Pioneer Natural Resources’ acquisition by Exxon Mobil, solidifying FANG’s position as a leading pure play in the Permian Basin. Over the past decade, Diamondback has achieved an impressive 24% annual revenue growth, though it experienced a slowdown last year alongside the broader energy sector. This dip offers investors an opportunity to acquire shares at around $150, reflecting a reasonable valuation of less than 10 times earnings. As the Permian Basin continues to be a vital resource, Diamondback is poised for sustained growth, making it an attractive investment in the energy landscape.

Taylor Morrison: Standing Out in Homebuilding

Taylor Morrison Home Corp. (TMHC) distinguishes itself in the competitive homebuilding industry through its commitment to environmental controls and innovative digital marketing. Based in Scottsdale, Arizona, TMHC operates in 13 states, including key markets like Florida and Texas. Over the past decade, the company has maintained a steady 14% annual revenue growth, an achievement that underscores its strategic approach. By integrating eco-friendly features such as air and water filtration systems and safe paint, Taylor Morrison not only meets but exceeds modern consumer expectations for health and sustainability, positioning it as a leader in the homebuilding sector.

Matson and Amphastar: Solid Growth Potential

Matson Inc. (MATX) and Amphastar Pharmaceuticals Inc. (AMPH) represent strategic investments with promising growth trajectories. Matson, a Hawaii-based shipping company, has consistently delivered 11% annual sales growth and 28% earnings growth over the past decade. Even if future performance is modest, Matson remains a solid choice, currently trading at nine times recent earnings. Amphastar, specializing in inhalation and intranasal products, including naloxone for opioid overdose treatment, is expected to reach $38 per share, up from its current $27. With a decade-long revenue growth of 10.8%, Amphastar’s focus on critical healthcare products positions it for continued success.

The Author’s Investment Record and Disclosure

The author’s track record in selecting Nasdaq stocks, spanning 18 columns since 2001, showcases an average one-year return of 18.6%, outperforming both the Nasdaq Composite and S&P 500. While the most recent picks yielded an 8.7% return, lagging behind the indices, historical performance remains strong, with notable successes like Apple’s 23% return offsetting weaker performances. The author emphasizes that past results do not guarantee future success and notes that none of the current picks are large tech firms, which have struggled this year. Portfolios are diversified across industries to balance risk, reflecting a prudent investment approach.

In conclusion, the Nasdaq’s recent decline presents a potential buying opportunity, but patience is advised. The highlighted stocks—East West Bancorp, Diamondback Energy, Taylor Morrison, Matson, and Amphastar—offer diverse growth prospects in their respective sectors. As with any investment, thorough research and consideration of personal financial goals are essential.