This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Nasdaq 100 Offers Cheap Stocks, Steady Gains

BOSTON ( TheStreet) -- Investors who built their stock portfolios based on the S&P 500 during the past two years to reduce risk would have been better off picking the Nasdaq 100, which offers lower volatility and stronger return potential.

S&P followers exposed themselves to weak financial and real estate stocks, which contributed to a 16% decline in the benchmark during the past two years.

The Nasdaq 100, which holds the biggest tech stocks, advanced 2.9% during that time. Since February 2005, the Nasdaq 100 has returned 4.1% annually, on average, beating the S&P's 0.2% increase.

The bullish run of 2009 has quietly petered out in 2010 as indicators post conflicting numbers and investors question whether the economy is improving. Broad market indices have started to flag as hot sectors are held back by those with lingering issues. Until employment starts to increase, investors must identify undervalued sectors to maintain their gains.

This approach is also known as an "enhanced index strategy." Its benefits can be seen in the graph below, which illustrates the performance gap between the S&P 500 and the Nasdaq 100 during the past two years.

An investor who bought stocks in the Nasdaq 100 two years ago would have lost less than an investor in the S&P 500 would have in the first year and would have gained more than the S&P investor during the most recent year.

The Nasdaq 100 not only lacks troublesome financial stocks, but it includes steady performing tech names that had no involvement in the real estate bubble that swept the market. Components Google (GOOG), Oracle (ORCL - Get Report) and Cisco (CSCO - Get Report) are up by more than 56% during the past year, with Cisco increasing 68%. These stocks have bounced off the market's bottom as investors recognize that they stand to have a profitable recovery.

Even after the past year's strong performance, these stocks still appear cheap. Google has a PEG ratio of just 0.9, suggesting that analysts expect more growth than what's priced into the shares, and a forward price-to-earnings ratio of 16.7. Oracle and Cisco offer forward P/E ratios of 13.2 and 14.2, respectively, versus a technology sector average of 35.6.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CSCO $29.54 -2.15%
GOOG $573.64 0.40%
ORCL $43.38 -1.48%
AAPL $129.36 0.21%
FB $79.60 -0.19%

Markets

DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs