Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the Invesco QQQ (Symbol: QQQ) where we have detected an approximate $974.1 million dollar outflow -- that's a 0.5% decrease week over week (from 553,700
In today's video, I discuss recent updates impacting various semiconductor and tech companies. Check out the short video to learn more, consider subscribing, and click the special offer link below.
The iShares Semiconductor ETF (SOXX) was launched on 07/10/2001, and is a passively managed exchange traded fund designed to offer broad exposure to the Technology - Semiconductors segment of the equity market.
U.S. President Joe Biden will announce on Wednesday a $100 million research drive to fight deadly drug-resistant bacteria, according to a White House official.
The initial public offering (IPO) market finally witnessed some activity this year following a slump of over one and half years due to elevated interest rates and macro uncertainty. While the IPOs of Arm Holdings (
NASDAQ:ARM
), Instacart (
NASDAQ:CART
), and Klaviyo (
NYSE:KVYO
) were cheered by investors on the first day of trading, these stocks have retreated since then. Other notable IPOs in 2023 include Cava Group (
NYSE:CAVA
), Oddity Tech (
NASDAQ:ODD
), Johnson & Johnson’s consumer healthcare unit Kenvue (
NYSE:KVUE
), and Intel (
NASDAQ:INTC
)-backed Mobileye (
NASDAQ:MBLY
). Using
TipRanks’ Stock Comparison Tool, we placed Instacart, Cava, and Arm against each other to find the IPO stock that is favored by Wall Street.
Instacart (NASDAQ:CART)
Grocery delivery company Instacart, legally called Maplebear Inc., made its stock market debut on September 19 at an IPO price of $30 per share. The stock
closed 12% higher on the first trading day but shed its gains in the subsequent days.
Instacart enjoyed solid demand during the pandemic when online shopping reached peak levels. However, growth rates decelerated following the reopening of the economy. In the second quarter of 2023, the company’s revenue grew 15% to $716 million, compared to the 40% growth witnessed in the prior-year quarter. Meanwhile, the company is aggressively cutting costs to improve its profitability.
Is Instacart Stock a Buy, Sell, or Hold?
On September 25,
Wolfe Research analyst Deepak Mathivanan initiated coverage of Instacart with a Hold rating and a fair value range of $24 to $42. While the analyst likes the company’s competitive position in online grocery and attractive profit margins, he prefers to be on the sidelines due to the rising competition in the grocery delivery space and lack of conviction on the re-acceleration of growth.
Mathivanan contended that Instacart’s growth has decelerated steadily over the past few quarters. He anticipates the company’s gross transaction value (GTV) to remain near the mid-single-digit range over the medium term. He thinks that CART stock should trade at a discount to rivals Uber (
UBER
) and DoorDash (
DASH
) that are growing at a faster pace, but at a premium to Lyft (
LYFT
).
Wall Street’s Hold consensus rating on
CART stock is based on three Hold ratings. As the stock recently made its debut, analysts have not yet assigned a definite price target. Shares have declined about 11% from the closing stock price on the first trading day.
CAVA Group (NYSE:CAVA)
Shares of Mediterranean restaurant chain Cava closed at $43.78 on June 15, marking a remarkable jump from its IPO price of $22 per share. However, the stock pared its gains and has declined more than 24% over the past three months.
Last month, Cava reported
upbeat second-quarter results. The company’s overall revenue (including Zoes Kitchen) increased 27% to nearly $173 million, driven by new restaurant openings and same-store sales growth of 18.2%. The company opened 16 net new restaurants in Q2 2023, ending the quarter with 279 locations.
The quarter also gained from over a 10% jump in traffic and higher menu prices. Further, the company swung to earnings per share (EPS) of $0.21 from a loss per share of $6.23 in the prior-year quarter.
Cava aims to open 65 to 70 locations this year and projects full-year same-store sales growth in the range of 13% to 15%.
What is the Future of Cava Stock?
Following the Q2 print,
William Blair analyst Sharon Zackfia reiterated a Buy rating on CAVA stock without a price target on August 16. The analyst attributed the company’s Q2 2023 performance to a resilient customer base and increased awareness due to the IPO, with favorable trends observed across vintages, geographies, and store formats.
Zackfia expects Cava to generate over $2.5 billion in revenue and about $400 million of adjusted EBITDA by 2032, supported by the company’s goal to operate nearly 1,000 locations.
With six Buys and three Holds,
Cava stock earns a Moderate Buy consensus rating. At $48.88, the average price target implies 51% upside.
ARM Holdings (NASDAQ:ARM)
Arm Holdings made a
solid debut with a 25% spike in shares on the first trading day. However, concerns over valuation and intense competition have weighed on investor sentiment.
The Softbank (
SFTBY
)-backed British company does not manufacture chips but licenses its designs to chipmakers, generating most of its revenue from royalties and licensing fees. The company’s architecture is the foundation for several smartphones.
However, the company’s top line is currently under pressure due to sluggish smartphone sales and macro pressures. Revenue declined by 2% year-over-year to $675 million in Q2 2023. Looking ahead, the company is optimistic about growth prospects in areas like cloud computing, automotive, Internet-of-Things (IoT), and AI-induced opportunities. That said, the company is expected to face intense competition in high-performance computing from chip giants Nvidia (NVDA), Advanced Micro Devices (AMD), and Intel.
Is Arm Holdings Stock a Buy Now?
On September 25,
Bernstein analyst Sara Russo initiated coverage on ARM stock with a Sell rating and a price target of $46. The analyst said that the expectations for the company’s revenue growth are too optimistic, given that the mobile end market is maturing.
Meanwhile,
Redburn Atlantic analyst Timm Schulze-Melander initiated coverage on ARM stock with a Hold rating price target of $50 on September 19. The analyst said that it would require a higher conviction about the company’s earnings accelerating over the next few years from a "weak" base in Fiscal 2023 for him to turn bullish on the stock.
The analyst added that the company's guidance for a "rapid pivot" in royalty rates would be a notable departure from its historical trends. While new opportunities, like Compute Subsystems and v9 ISA royalty rates, offer attractive growth potential in the future, the analyst contends that these new avenues will take time to drive royalty revenue growth.
Wall Street’s Hold consensus rating on
Arm Holding stock is based on one Buy, three Holds, and one Sell. The average price target of $50.75 implies a possible downside of 5% from current levels.
Conclusion
While several IPO stocks surged on their first trading day this year, they shed their gains soon as macro uncertainty continues to impact investor sentiment. Wall Street is cautiously optimistic about Cava stock but remains on the sidelines when it comes to Instacart and Arm Holdings. Analysts see solid upside potential in Cava stock from current levels.
Disclosure
When investors think of tech ETFs, they often think of the massively popular
Invesco QQQ Trust (
NASDAQ:QQQ)
and the
Technology Select Sector SPDR ETF (
NYSEARCA:XLK)
-- rightfully so, as these are low-cost long-term winners that have performed well for years. But there’s also an overlooked tech ETF that deserves to be in this conversation as well and is worthy of more attention -- the
Fidelity MSCI Information Technology ETF (
NYSEARCA:FTEC)
.
At $6.9 billion in assets under management (AUM), FTEC isn't as big as QQQ or XLK, but its long-term performance is comparable to that of these two juggernauts, and it’s actually an even more cost-effective option for investors. Here’s more on FTEC.
What is the FTEC ETF's Strategy?
The passively-managed FTEC ETF invests at least 80% of its assets in its underlying index, the MSCI USA IMI Information Technology 25/50 Index. All of the stocks in this index are classified within the technology sector by the Global Industry Classification Standard (GICS).
FTEC's Strong Past Performance
FTEC has put up some great returns over the years. In the past year, the fund has returned 28.4%. Over the past three years, as of the end of August, FTEC returned 11.5% on an annualized basis. FTEC has returned an even better 17.9% on an annualized basis over the past five years. FTEC launched in October 2013, so it does not yet have a 10-year annualized return as it approaches its 10-year anniversary, but it has returned an impressive 19.6% on an annualized basis over the life of the fund.
These results slightly underperformed those of XLK but are within the same ballpark. XLK has returned 31.1% over the past year. Over the past three and five-year time frames, XLK has posted total annualized returns of 13.4% and 19.6%, slightly outperforming FTEC.
Meanwhile, QQQ has returned 27.2% over the past year. Further, QQQ has posted annualized returns of 9.3% and 16.0% over the past three and five years, respectively, slightly underperforming FTEC.
As you can see, while FTEC slightly trailed behind XLK over the past three and five years, it outperformed QQQ, meaning that it deserves to be in the conversation with these top tech ETFs.
Low Fees
FTEC is in the same league as these top tech ETFs based on its multi-year performance. And it also is right in the mix with them based on its low expense ratio. In fact, with an expense ratio of 0.08%, it’s even cheaper than both QQQ and XLK, even though both are well-known for being cost-effective. QQQ has an expense ratio of 0.20%, while XLK sports an expense ratio of 0.10%.
An investor in FTEC would pay just $8 in fees on a $10,000 investment over the course of one year. Someone putting the same amount into XLK would pay $10 in fees, and an investor allocating the same amount into QQQ would pay $20. These are all reasonable amounts, but FTEC is the cheapest of the three funds.
You can see how these minor differences in expenses compound over time by looking further out. Assuming that each fund returns 5% per year going forward and that each maintains its current expense ratio, the FTEC investor would pay just $108 in fees over the course of 10 years versus $128 for the XLK investor and $255 for the QQQ investor.
Below, you can check out
a comparison of FTEC versus QQQ and XLK using TipRanks' ETF comparison tool. This unique tool enables investors to compare ETFs on a variety of factors, including their expense ratios, long-term performances, and Smart Scores. Investors can use the ETF comparison tool to simultaneously compare up to 20 ETFs at a time.
FTEC's Holdings
FTEC offers good diversification since it owns 314 stocks, but it is also fairly concentrated in that its top 10 holdings account for a relatively high 61.4% of assets. For comparison, XLK owns
67 stocks, and its top 10 holdings make up 69.9% of the fund, while
QQQ owns 102 stocks, and its top 10 holdings account for 48.3% of the fund.
Below, you can check out
FTEC’s top 10 holdings using TipRanks’ holdings tool.
FTEC features many of the top tech stocks that are household names in today’s stock market. Apple (
NASDAQ:AAPL
) and Microsoft (
NASDAQ:MSFT
), the two largest companies in the world by market capitalization, enjoy particularly large weightings of 22.8% and 20.5% within the fund.
Meanwhile, the semiconductor industry is well-represented in FTEC’s top 10 holdings through the likes of Nvidia (
NASDAQ:NVDA
), Broadcom (
NASDAQ:AVGO
), and Advanced Micro Devices (
NASDAQ:AMD
). Enterprise software mega-caps like Adobe (
NASDAQ:ADBE
), Salesforce (
NYSE:CRM
), and Oracle (
NYSE:ORCL
) also occupy top 10 positions within the fund.
Further, an impressive nine out of FTEC’s top 10 holdings feature Smart Scores of 8 or above. The
Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. FTEC itself features an Outperform-equivalent ETF Smart Score of 8 out of 10.
Not only is the Smart Score optimistic about FTEC and its individual holdings, but so are Wall Street analysts, as you'll see below.
Is FTEC Stock a Buy, According to Analysts?
Turning to Wall Street, FTEC earns a Moderate Buy consensus rating based on 238 Buys, 74 Holds, and two Sell ratings assigned in the past three months. The
average FTEC stock price target of $149.10 implies 23.1% upside potential.
Investor Takeaway
While it doesn’t get as much attention as its counterparts XLK or QQQ, FTEC is right up there with them as another top tech ETF. Its performance over the past five years is comparable to those of the two larger funds, and it is actually slightly more cost-effective to own.
All three of these ETFs are great funds, but FTEC, in particular, warrants further investor consideration based on its strong long-term track record, its high-quality portfolio of top tech stocks, and its minimal expense ratio.
Disclosure
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