The Nasdaq-100 is heading toward new highs again, but it’s not the backs of companies that most investors would think. Year-to-date, the performers within the tech heavy index include Netflix (NFLX), Electronic Arts (EA), Amazon (AMZN) and Avago Technologies (AVGO).
Surprisingly absent from the list are the names like Apple (AAPL), Google (GOOG, GOOGL) and Microsoft (MSFT) — after all, they do collectively account for almost 30% of the Nasdaq-100’s weighting.
The disparity in performance among the Nasdaq-100’s companies underscores the need for investors to take their investment decisions to the stock level through the remainder of 2015 as indices are likely to remain range-bound.
If you’re looking for ideas, one company that has flown high — and yet still flown under the market’s radar — is Electronic Arts.
The video game manufacturer has had a great year, with EA stock posting year-to-date returns of nearly 45%. The technical strength comes honestly, too, as the company has bested analyst expectations for earnings for seven consecutive quarters by an average margin of more than 100% expectations.
Looking at historical returns, a seasonal trend is apparent for EA. Historically, EA shares typically outpace the S&P 500 from May through November. This seasonality matches a pattern that we see in the consumer discretionary sector and retail industry; investors typically migrate to this area of the market ahead of holiday season shopping seasons.
The company lands on our “buy” list due to the current contrarian sentiment read as investor sentiment indicators tell us that the market has been ignoring EA stock as a performance leader. Short interest on the shares currently represents 6.7 times the stock’s average daily volume, indicating that a short covering rally is likely in the cards.
The analyst community is starting to wake up to the EA stock price performance. This week, Jefferies upgraded the shares from a “hold” to a “buy,” stating that the company’s current product line looks the best that it has ever been. Currently, only 55% of the analysts covering the stock have it ranked a “buy,” meaning that there are likely to be a number of upgrades to follow, driving prices even higher.
The combination of technical strength, pessimistic sentiment and positive seasonality raises a potential target of $75-$80 per share with a chance that the stock will provide a timely entry price of $65 in the near-term. Over the short-term, EA stock looks a little over-extended as the RSI has broken into “overbought” territory. This suggests that we could see a pullback over the short term.
From a longer-term perspective, the trend will continue to be EA’s friend, especially as we head into the seasonally strong period for shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
