Never get attached to stocks in the Nasdaq 100. Companies that fall behind the index’s fast growth are literally left behind to make room for new blood.
The Nasdaq will yank out six stocks from its popular Nasdaq 100 index after the market closes this Friday, including two consumer discretionary companies, two communication services firms, one health care company and a tech stocks. And in their place will be three tech stocks, Marvell Technology (MRVL), Okta (OKTA) and Atlassian (TEAM). Also joining the Nasdaq 100 will be utility American Electric Power (AEP), communication services Match Group (MTCH) and consumer discretionary Peloton Interactive (PTON).
All the tumult is part of the Nasdaq’s annual rebalancing. The Nasdaq 100 holds the 100 most valuable nonfinancial stocks on the Nasdaq Composite. And it’s the basis of the popular Invesco QQQ Trust ETF (QQQ). With $145 billion in assets, QQQ stock is the fifth most popular ETF in the world.
And what a year it’s been for QQQ stock. Powered by massive gains by the world’s most valuable tech and tech-related companies, the QQQ is up 43% this year. That’s the Nasdaq 100’s best year since skyrocketing 53.8% in 2009. Just the average market value of companies in the Nasdaq 100 is an astounding $147.2 billion.
If you can’t keep up, you’re out.
Nasdaq 100 Ups Its Tech Vibe
The QQQ is already heavy on tech, with 47% of its portfolio in that sector. And it’s going to shift even more that way.
Atlassian, the Australian corporate collaboration system, is the most notable tech addition. Thanks to a work-from-home world, the IBD Global Leader’s stock surged 95% this year. That pushed its market value to $58.5 billion. That’s astonishing. The company will instantly be the 45th most-valuable Nasdaq 100 stock — after not even being on it until Friday. Keep in mind Atlassian stock already jumped 35% in 2019 and 96% in 2018. Analysts think its profit will sink 3% this fiscal year before jumping 25% in fiscal 2022.
At-home workout equipment maker Peloton is up even more than Atlassian this year, 329%. But it has some catching up to do. Even following its huge run this year, it’s worth $36 billion. It only started trading, though, last September. So investors will hope it might crush the market for the second year in a row. Analysts think Peloton will turn a profit in fiscal 2021 of 32 cents a share.
Communication chipmaker and IBD 50 member Marvell rounds out the tech invasion on the Nasdaq 100. It’s up nearly 67% this year, hauling its market value to just shy of $30 billion. It’s one of the stocks that had back-to-back good years. Its stock gained 64.1% in 2019. Analysts think profit this fiscal year will jump nearly 40%.
The Utility Sleeper In The Nasdaq 100
A utility in the high-octane Nasdaq 100? Yes, it’s true.
American Electric Power, now with a market value of $41 billion, muscles into the Nasdaq 100. It’s definitely in the minority. Less than 1% of the Nasdaq 100’s holdings are in utilities.
It’s definitely stable. Analysts think its profit will rise 2% in 2020 and another 7% in 2021. The stock, though, is still down 13% this year. Chalk this one up to simply having a market value vast enough to put it on the Nasdaq 100 anyway.
Nasdaq 100: Who’s Out?
Survival of the fittest rules with the Nasdaq 100. If your stock doesn’t rally with the rest of the high-octane index, it’s rapidly on the bubble.
BioMarin Pharmaceutical is a dramatic example. The biotech firm is working on a number of treatments for conditions ranging from Batten disease to lysosomal disorders. But the stock dropped 2% this year, pulling its market value down to $14.4 billion. Keep in mind, too, the stock dropped 0.7% in 2019 and 4.5% in 2018. And while it rose 7.6% in 2017, the Nasdaq 100 gained 31.5% that year.
Sometimes even a big gain isn’t enough, especially when the market is rising. Video game maker Take-Two Interactive’s market value rose to $20.8 billion this year. The stock is up 59% this year. But it just hasn’t kept up in terms of value, as it was already in the bottom 11 valuable companies on the Nasdaq 100.
Some of these stocks may just be having a bad year. And some may spring back. But with the Nasdaq 100, you keep up or you’re out.
Nasdaq 100 Changes Coming*
|Company||Symbol||2020 % Ch. est.||Sector||Composite Rating||MV ($ Millions)|
|Added To Nasdaq 100|
|American Electric Power||(AEP)||-13.0%||Utilities||22||$40,808.2|
|Marvell Technology Group||(MRVL)||66.9%||Information Technology||94||$29,778.1|
|Match Group||(MTCH)||**||Communication Services||93||$38,517.0|
|Peloton Interactive||(PTON)||329.3%||Consumer Discretionary||98||$35,662.6|
|Removed From Nasdaq 100|
|BioMarin Pharmaceutical||(BMRN)||-2.0%||Health Care||64||$15,039.7|
|Citrix Systems||(CTXS)||15.8%||Information Technology||53||$15,812.8|
|Expedia Group||(EXPE)||14.0%||Consumer Discretionary||42||$17,446.4|
|Liberty Global||(LBTYA)||8.0%||Communication Services||23||$13,955.4|
|Take-Two Interactive Software||(TTWO)||59.4%||Communication Services||93||$21,367.5|
|Ulta Beauty||(ULTA)||5.0%||Consumer Discretionary||44||$14,974.2|
|Invesco QQQ Trust, Series 1||(QQQ)||43.0%|