Why The NASDAQ Is Vastly Outpacing The Broader Market

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Why the Nasdaq index is leading the broader market. Let us take a look.

SEC Filings update

New financial statements are still few and mostly from companies with fiscal quarters ended November. The volume of SEC filings will increase in coming weeks. Annual financial statements will begin to appear in volume in mid-February.

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Q4 2019 hedge fund letters, conferences and more

2019 Technology Industries

Historically lower corporate growth is associated with lower share prices. With overall corporate growth falling at a faster rate in the third quarter financial statements of US companies this is a good time to review potentially the best and worst looking industries from 2019 – let’s start with small technology companies versus overall OTOS NASDAQ index. Reviewing the differences in fundamental growth factors across big and small tech will help you with your value stock selection.

Investors do not wait?

The population of extended-share-price companies has increased with the rally in shares last month. This provides many good opportunities to SELL lower growth companies at attractive prices. For BUY ideas look for companies with stable and rising growth trading in the lower end of its recent volatility range.

Otos will help value investors find them as the new financial statements (annual for 2019) are reported in the coming weeks.

Otos total NASDAQ Index

The share price index of the Otos total NASDAQ Index has advanced by 80% relative to the Otos Total Market Index since the April 2013 low. Current relative price to sales is at the lower-end of the range in the record of the Index.

Last week the share price index of the Otos total NASDAQ Index advanced by 2.6% compared to a 0.4% advance for the Otos Total Market Index. Gaining stocks in the Otos total NASDAQ Index numbered 346 or 45.8% of the Index total compared to a 23.6% gaining stocks frequency across the 3979 stocks in the Otos U.S. stocks universe.

We have collected fourth quarter sales data for 749 of the 755 comparable record companies in the Otos total NASDAQ Index representing 100% of the capital value. The Index capital weighted average sales growth rate is 11.3%. The proportion of Index market capital accounted for by rising sales growth companies is up to 21.1%, compared to 17.8% last quarter.

Currently, sales growth is low in the record of the Otos total NASDAQ Index and lower than last quarter.

The proportion of total market capital accounted for by rising gross profit margin companies is up to 64.7% compared to 53.3% last quarter.

The Index is recording a falling gross margin. Inventories are up, diminishing the chance of a further increase in the gross margin. SG&A expenses are high in the record of the Index but rising. That implies that the Index may be capable of accelerating EBITDA relative to sales with lower costs but has yet to achieve a cost reduction. Lower gross margins and higher SG&A expenses are producing a deceleration in EBITDA relative to sales. Interest costs are high in the record of the Index and falling. That implies that the Index has further capability to accelerate earnings relative to sales with lower financing costs. Lower interest costs also diminish financial risk and are often associated with higher share valuation.

The more stable the pot appears, the better the attributes. Green and gold are good. Red is bad and the more intense the red the more urgent the call to action.

Otos total NASDAQ Index

Otos total NASDAQ Index

Nasdaq vs Energy-Small Companies Index

The share price index of the Technology-Small Companies Index has declined by 22% relative to the Otos Total Market index since the June 2018 high. Current relative price to sales is the lowest level in the record of the Index.

Last week the share price index of the Technology-Small Companies Index was unchanged compared to a 0.4% advance for the Otos Total Market Index. Gaining stocks in the Technology-Small Companies Index numbered 37 or 52.1% of the Index total compared to a 23.6% gaining stocks frequency across the 3979 stocks in the Otos U.S. stocks universe.

We have collected fourth quarter sales data for all of the comparable record companies in the Technology-Small Companies Index. The Index capital weighted average sales growth rate is 3.2%. The proportion of Index market capital accounted for by rising sales growth companies is up to 47.9%, compared to 31.2% last quarter.

Currently, sales growth is low in the record of the Technology-Small Companies Index but higher than last quarter.

The proportion of total market capital accounted for by rising gross profit margin companies is down to 49.5% compared to 54.0% last quarter.

The Index is recording a high and falling gross margin. Inventories are up, diminishing the chance of a further increase in the gross margin. SG&A expenses are high in the record of the Index and falling. That implies that the Index has further capability to accelerate EBITDA relative to sales with lower costs. The gross margin is falling at a more rapid rate than SG&A expenses, producing a deceleration in EBITDA relative to sales. Interest costs are high in the record of the Index and rising. Higher interest costs not only slow cash flow growth but are often associated with lower valuation.

The more stable the pot appears, the better the attributes. Green and gold are good. Red is bad and the more intense the red the more urgent the call to action.

OTNI

OTNI



About the Author

Pierre Raymond
Pierre Raymond is a 25-year veteran of the Financial Services industry. Driven by his passion for financial technology he has transitioned from being a quantitative stock picker, to an award-winning hedge fund manager, credit risk manager to currently a multipurpose risk IT banking consultant. Pierre is the cofounder of Global Equity Analytics & Research Services LLC (GEARS) and a current partner at OTOS Wealth Systems Inc.