Don’t count the Nasdaq out just yet.
The popular index of 100 largely growth-oriented companies is in the midst of a sharp reversal that has erased much of the year’s losses. An impressive 1,700 point surge off the March 14th bottom has the Nasdaq down 9.6% in 2022. Not great, but considering the backdrop of the Russia-Ukraine war, rampant inflation, and rising interest rates, a single digit decline is quite remarkable.
Whether the momentum carries over into the second quarter remains to be seen. If the Nasdaq can somehow get back in the green by year end it would stretch its winning streak to four years after advances of 38%, 48%, and 27% from 2019 through 2021. Much would seem to have to improve in the way of geopolitical tensions and spiking oil prices. But as the saying goes, that’s why they play the game.
Despite the potpourri of economic headwinds, a lot has been going right for some Nasdaq names. In fact, nearly one out of four stocks are up year-to-date.
In a sea of companies battered by an assault on high valuations, a handful of stocks are leading the benchmark’s comeback bid. The ones at the top of the list may come as a surprise.
What is the Nasdaq’s Top Performing Stock in 2022?
After declining 32% last year,
is the Nasdaq-100’s top performer so far this year. Up 23%, the big data software provider’s recovery is intriguing when you consider the market’s recent disdain for unprofitable tech businesses.
Splunk reported strong fourth-quarter results that gave the market renewed confidence in the company’s transformation strategy. It is shifting its business model from perpetual software licensing to ratable licensing in a bid to stabilize its financials through annual recurring revenue (ARR) streams.
A 21% jump in revenue and significant bottom-line improvement in Q4 suggests Splunk is on course to replicate the blueprint made successful by other cloud software players like Adobe and Autodesk.
Earlier this month Splunk named former Proofpoint founder Gary Steele as its new CEO. The hire has also helped inject new life into the former $225 stock. Additionally, Goldman Sachs gave Splunk a Street-high $232 price target which implies that there could be plenty more upside.
What is a Good Cybersecurity Stock?
Check Point Software Technologies Ltd. (NASDAQ: CHKP) is right on Splunk’s heels with a 22% year-to-date return. It too is coming off a down year in which the stock slipped 12% as earnings growth slowed considerably from 2020.
The cybersecurity specialist is on the move again thanks to increasing global demand for advanced threat prevention. Check Point has recently inked deals with government, industrial, and telecom customers for its Infinity solution while demand for CloudGuard, Harmony, and Sandblast software remains strong. The vast majority of Fortune 500 companies use Check Point products.
Analysts are expecting the Israeli software group to record stronger growth this year due to new offerings like Quantum Lightspeed Firewalls and acquisitions like cybersecurity startup Spectral.
Growth is forecast to accelerate in the years that follow as enterprises loosen their IT budgets in the post-pandemic economy and prioritize cybersecurity. Mordor Intelligence estimates that the global threat intelligence market will grow 13% annually over the next five years. Check Point’s experience and large user base should make it a primary beneficiary of this growth.
Check Point, which trades at 20x this year’s earnings, appears to have room for multiple expansion given the industry’s long-term growth outlook. The recent dip from $150 back into the $130’s is shaping up to be a reboot for new all-time highs to come.
Who is Buying Activision Blizzard?
Activision Blizzard, Inc. (NASDAQ: ATVI) is on the Nasdaq leaderboard for now, but soon may not even be listed on the exchange. That’s because the gaming company is being acquired by Microsoft which offered $95 per share back in January in a bid to accelerate its cloud gaming and metaverse plans. As a result, the depressed stock gapped up and has since treaded water.
Despite the 20% year-to-date advance, Activision Blizzard is trading well below Microsoft’s offer at around $80 per share. This reflects the high regulatory uncertainty around the deal. Big tech mergers have faced intense regulatory scrutiny of late which, combined with Activision Blizzard’s own regulatory and legal issues, has the stock trading at a 16% discount to the buyout level.
Many sell-side research firms are calling this dislocation an attractive arbitrage opportunity. In recent weeks, Jeffries, Wedbush, and Berenberg Bank called Activision Blizzard a buy expressing confidence that the deal will go through. However, investors have been reluctant to embrace this assertion and the stock has trended lower since the January 18th takeover announcement.
Note that if Activision Blizzard was trading around $95 it would be the Nasdaq’s leader by a mile, but for now it’ll have to settle for third place.
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