Please ensure Javascript is enabled for purposes of website accessibility

Profit From These Double-Digit Growers

By Selena Maranjian - Apr 11, 2013 at 10:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Being big doesn't keep some companies from rapid growth.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some big, technology-heavy stocks to your portfolio, the Direxion Nasdaq-100 Equal Weight Index ETF (QQQE 3.08%) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Nasdaq-100 ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF is too new to have a sufficient track record to assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why Nasdaq-100 and equal-weighting?
Nasdaq-100 stocks offer the benefits of large-cap status, which can provide a bit more stability than small caps, and they're often in rapidly changing and growing industries, as well. Equal weighting is a sensible way to structure an index, as it doesn't let the biggest companies overly influence the index's returns, when the smaller ones, which might be able to grow faster, are left less powerful.

More than a handful of big, technology-heavy companies had strong performances over the past year. Seagate Technology (STX) surged 52%. Despite that, with a P/E ratio recently below 5, it's still a seemingly cheap stock. It's been whacked by the decline of the PC, but there's still hope as cloud computing takes off and requires storage, and if solid-state drives grow in demand. Some don't like the prospects for Seagate's main drive business, though, and think Seagate is cheap, but not that attractive.

Vertex Pharmaceuticals (VRTX 1.51%) jumped 48%, as it looks to expand the application of its promising cystic fibrosis drug, Kalydeco. Vertex recently entered into a deal with Bristol-Myers Squibb to pursue a treatment for Hepatitis C. 

Micron Technology (MU 3.85%) gained 41%, with bulls seeing growth in tablets and smartphones driving demand for memory chips. The stock soared to a 52-week high recently, when Micron posted its second-quarter earnings. Bulls liked the report, seeing lower costs and rising margins hinting at a return to profitability soon. Micron's purchase of Japanese manufacturer Elpida seems promising, boosting its capacity and its relationship with Apple. Bears worry about Micron losing market share, though.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Nuance Communications (NUAN), a speech-recognition software specialist, slid 10%. Many had expected the health-care field to offer great new opportunity for the company, but now, some worry about competitors in that field, while others don't like its growth-by-acquisition strategy. With a forward P/E below 12, the stock seems intriguing. Carl Icahn agrees, having amassed a sizable stake in the company.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nuance Communications, Inc. Stock Quote
Nuance Communications, Inc.
NUAN
Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
VRTX
$273.73 (1.51%) $4.08
Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
MU
$73.32 (3.85%) $2.72
Seagate Technology plc Stock Quote
Seagate Technology plc
STX
Direxion Shares ETF Trust - Direxion NASDAQ-100 Equal Weighted Index Shares Stock Quote
Direxion Shares ETF Trust - Direxion NASDAQ-100 Equal Weighted Index Shares
QQQE
$69.19 (3.08%) $2.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.