7 Stocks I Like on the Nasdaq Market
The Nasdaq Stock Market has been hitting new highs this year.
Nasdaq is a market with a dual personality. It's home to most large technology companies, and also the place where a slew of smaller stocks in other industries are traded.
Tech stocks have been the stock market's leaders last year and so far this year. Smaller stocks are starting to come alive.
Most investors head to the Nasdaq for technology exposure. That's fine, but I wouldn't ignore the small fry in other industries. Here are seven Nasdaq stocks I like now.
East West
East West Bancorp Inc. (NASDAQ:EWBC), based in Pasadena, California, finances a lot of film and television projects. It's also one of the few U.S. banks licensed to do business in China.
U.S.-China relations stink right now. And the major presidential candidates (Joe Biden and Donald Trump) aren't perceived as friendly to China. But neither was Richard Nixon, until he moved to open up a relationship with China in 1972.
Any thaw in the U.S.-China relationship would be good for East West. Meanwhile, it is doing pretty well, having increased its earnings by more than 14% a year over the past 10 years.
Agco
Selling all kinds of agricultural equipment, from fertilizer to tractors, through a network of more than 3,000 dealers worldwide, Agco Corp. (NYSE:AGCO) has been profitable in each of the past 24 years.
Over the past 10 years, it has increased its earnings at better than a 14% clip (coincidentally the same as East West). Its return on stockholders' equity lately has been running at 27%; I consider anything over 15% good. Yet the stock is cheap, selling for less than 8 times recent earnings.
Legacy Housing
Based in Bedford, Texas, Legacy Housing Corp. (NASDAQ:LEGH) makes manufactured homes and extra-small homes, serving the low end of the housing market.
Since the U.S. has a shortage of single-family homes, and since paying for a home is a strain from many families, I think this company occupies a useful niche. The company has very little debt, and the stock sells for 9 times earnings.
Preformed Line
Preformed Line Products Co. (NASDAQ:PLPC), which calls Cleveland, Ohio home, makes equipment for power lines and phone lines. It also makes mounting systems for solar panels.
Over the past decade, Preformed has increased its earnings at a 19% annual pace. Last year growth was slower, at 7%. The stock sells for about 10 times earnings.
MasterCraft Boat
I've had poor luck with holdings in the boating industry. Nonetheless, I think that MasterCraft Boat Holdings Inc. (NASDAQ:MCFT) looks intriguing.
The company, out of Vonore, Tennessee, makes sport boats and outboard boats. The pandemic boosted boat sales because it's a form of recreation that is outdoors and doesn't involve crowds. Lately boat makers' sales have retreated, but if they level off, I like this stock at less than 7 times earnings.
Alphabet
We don't want to neglect the big tech companies. Alphabet Inc. (NASDAQ:GOOGL) is one of the Magnificent Seven stocks that have chalked up big gains in Alphabet's case, 373% over the past 10 years.
Alphabet is the parent to Google, You Tube, Waymo and Deep Mind. Innovation is built into its culture, and the company has increased its earnings by an average of more than 21% a year over the past decade.
The stock is much more expensive than those discussed above, but I don't think that 24 times earnings is too much to pay here.
Apple
Even more expensive, at 27 times earnings, is Apple Inc. (NASDAQ:AAPL), the maker of iPhones and Mac computers. Here there are worries, but also great strengths.
Earnings growth, which averaged better than 16% over the past decade, slowed to 9% last year. The iPhone faces increased competition from Huawei in China. And the company's debt has climbed to 146% of equity.
Nonetheless, I still like Apple. It has a large and loyal following, and a history of successfully pulling rabbits out of hats in product development.
Track record
Every year in March, I write about my favorite stocks on the Nasdaq. Over 17 years, the average 12-month return on my recommendations has been 19.20%. The beats the average return on the Nasdaq Composite Index (16.30%) and the Standard & Poor's 500 Total Return Index (13%).
Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future.
My picks from a year ago climbed 23.80%, which beat the Nasdaq Composite (20.80%) but not the S&P 500 (31.60%). The best performer was Taylor Morrison Home Corp. (NYSE:TMHC), up 57%. The worst was Cirrus Logic Inc. (NASDAQ:CRUS), down 15%.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts. He or his clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.
This article first appeared on GuruFocus.
