Following Tech Stocks With Nasdaq Composite? Try MarketGrader Technology

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The Wall Street Journal ran a piece this morning on the recent performance of technology stocks based on the Nasdaq Composite Index, which gained 18.6% during September and October. The article, titled “No Hype: Tech Is Again a Market Star,” describes how recent investor enthusiasm for stocks has mixed with the Fed’s ongoing policy of (very) easy money to favor sectors that benefit from the global growth story, not the least of which is technology (read article here).

We thought this was a nice opportunity to introduce, for those who don’t know it, the MarketGrader Technology Index. Made up of 40 companies and rebalanced quarterly on the third week of February, May, August and November, MG Tech is, unlike the Nasdaq Composite, a pure technology index. And its performance has nothing to envy of the famous Composite. In the September through October period in which the Nasdaq gained 18.6% MG Tech returned 21.3%. This bested the S&P 500 Index by 8.5 percentage points during this two month period. We do not, however, benchmark MG Tech against the Nasdaq but rather against the technology stocks in the S&P 500 and S&P 1500 indexes. You may see their performance on our Sector indexes page. Below you may see the year-to-date and 3 year cumulative performance of MG Tech against its benchmarks as well as the Nasdaq and the S&P 500.

Year to Date (through 11/05/10)

Nasdaq: 13.7%

MG Tech: 11.6%

S&P 500: 9.9%

S&P 500 Tech: 9.2%

S&P 1500 Tech: 10.4%

3 Year Cumulative (through 11/05/10)

Nasdaq: -7.7%

MG Tech: 4.1%

S&P 500: 18.4%

S&P 500 Tech: -7.2%

S&P 1500 Tech: -6.0%

A significant difference between MG Tech and all the indexes listed above is, of course, its weighting. All 40 companies in the index are equally weighted at the beginning of each selection period (the next one is a mere two weeks away) while the market benchmarks listed above are all market cap weighted. In the case of the Nasdaq, for example, two companies account for a quarter of its weight: AAPL at 20.7% and GOOG at 4.7%. Below are a few of the companies in the current MG Technology Index:

Best Performers this Selection Period (since August)

MIPS Technologies Inc. (MIPS) 131.7%

Fortinet Inc. (FTNT) 70.2%

AXT Inc. (AXTI) 52.9%

Veeco Instruments Inc. (VECO) 34.9%

Altera Corp. (ALTR) 29.9%

The Five Highest Graded Companies (with overall grade)

Micron Technology Inc. (MU) 90.8

Research in Motion Ltd. (RIMM) 90.4

Microsoft Corp. (MSFT) 90.1

GT Solar International Inc. (SOLR) 87.9

Power-One Inc. (PWER) 84.8

The Five Stocks With the Highest Sentiment (with sentiment score)

Apple Inc. (AAPL) 9.6

AXT Inc. (AXTI) 9.5

Syntel Inc. (SYNT) 9.4

Fortinet Inc. (FTNT) 9.1

Hittite Microwave Corp. (HITT) 9.0

These are the companies that have been selected the most times to the index since we began publishing it (with number of quarterly selections):

FactSet Research Systes Inc. (FDS) 29 selections

Cognizant Tech Solutions Corp. (CTSH) 28

Western Digital Corp. (WDC) 28

j2 Global Communications Inc. (JCOM) 24

FLIR Systems Inc. (FLIR) 23

We’re highlighting MG Tech as the index of the month during November, which means that all of its selections are available for free to all visitors. You may view them by clicking here. From that page you may click on any of the stocks to view a complete MarketGrader analysis for free. And remember, these selections will change after the third Friday of the month, so please visit the page again to see the index’s new components. Enjoy.

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