Three lesser-known Nasdaq 100 components could offer better buying opportunities in coming months than big tech giants sitting on top of the index's leadership board right now. Apple Inc. (AAPL), Tesla, Inc. (TSLA), and the dozen or so semiconductor plays lifting the index to all-time highs in the past year all face potential coronavirus fallout that could undermine first quarter profits and send those stocks to much lower levels.
These picks share three important characteristics. First, they've carved bullish patterns that have triggered recent breakouts or have reached perfect prices for a breakout. Second, none are particularly overbought or near the end of their buying cycles, unlike the majority of the Nasdaq 100's top performers. Third and most importantly, they have defensive characteristics that can potentially withstand a sell-off if the virus or other headwinds trigger a long-overdue correction.
Cerner Corporation (CERN) stock carved a long series of higher highs and higher lows between the 1990s and the second quarter of 2015, when it topped out at $75.72. A two-legged downtrend persisted into January 2017, finally bottoming out at a three-year low in the mid-$40s. Breakout attempts failed in 2017, 2018, and 2019, although the on-balance volume (OBV) accumulation-distribution indicator hit an all-time high in April 2019.
The stock finally broke out on Wednesday, Feb. 5, after reporting in-line fourth quarter 2019 profits and revenues, completing a five-year cup and handle pattern that forecasts a rally into the triple digits. It consolidated gains into the weekend, settling just under $80. A pullback into the mid-$70s or a buying spike above last week's high would set off follow-through buying signals, with accumulation readings at all-time highs acting as a stiff tailwind for higher prices.
Seattle Genetics, Inc. (SGEN) finally cleared 2001 resistance at $11.49 in 2010 and entered a strong uptrend that topped out in the mid-$50s in 2014. That level marked resistance into a post-election breakout in 2016, but the uptick made little headway, stalling immediately in the mid-$70s. An October 2018 breakout attempt failed, reinforcing resistance that was finally mounted in October 2019.
Buying interest faded in November, giving way to an orderly pullback that found support at the 50-day exponential moving average (EMA) in January 2020. It just survived a test at that price level, while OBV lifted to an all-time high and the weekly stochastics oscillator crossed into a new buy cycle that predicts six to twelve weeks of upside. Taken together, the stock looks set to enter a sustained uptrend that could reach $150 in the coming months.
Mondelez International, Inc. (MDLZ) was formed by the 2012 Kraft Foods spin-off of North American grocery products that also generated The Kraft Heinz Company (KHC) public offering. The stock topped out in the mid-$40s in the third quarter of 2015 after a healthy three-year uptrend and eased into a broad trading range that built support in the mid-$30s during sell-offs in 2016 and 2018. A 2017 breakout attempt failed, reinforcing resistance at the 2015 high.
An early 2019 rally finally cleared resistance and built solid gains into June, stalling in the mid-$50s. Several breakout attempts into October failed, yielding a decline that found support at the 200-day EMA in the fourth quarter. The stock returned to resistance in January 2020 and broke out at month end, lifting to $59.42. It has been testing that level for the past week and could head higher soon, posting superior returns. The 1.95% forward dividend yield adds value to this play, while its membership in a defensive sector lowers macro risk.
The Bottom Line
These lesser-known Nasdaq 100 components could offer superior returns with lower volatility in coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.