2 Stocks to Protect Your Portfolio From a Potential Nasdaq Reversal

 | Jun 28, 2023 11:18

  • Nasdaq's stunning rally has taken a breather of late
  • Meanwhile, leveraged inverse ETFs have seen capital inflows growing, raising concerns that the rally might be over
  • With this backdrop, let's take a look at two stocks you can buy for H2 2023
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    • In 2023, the technology sector has been a standout performer, with the Nasdaq Composite and the Nikkei 225 leading the way. The rally in technology can be attributed to two main factors:

    • Expectations of a halt in the Fed's rate hikes
    • The growing prominence of artificial intelligence.

    So far this year, the Nasdaq has gained +29.5%, with the Invesco QQQ Trust (NASDAQ:QQQ) up +36.6% and the iShares Semiconductor ETF (NASDAQ:SOXX) up +44.6%. Strong interest is evident in technology stocks, mutual funds, and ETFs that track the Nasdaq index.

    However, concerns have arisen over the high valuations in the Nasdaq. Currently, the Nasdaq is trading at 28 times its expected earnings for the next 12 months, which is 40% above its 10-year average. Similarly, the S&P 500 trades at 19 times its expected earnings, surpassing its historical average of 15.6 times.

    Historically, when the S&P 500 has traded at similar valuations, it has experienced an average decline of 13% over the following 12 months. This has led many to believe that the Nasdaq could face a similar fate.

    To hedge against a potential decline in the technology sector, one can buy inverse ETFs, which replicate the performance of a falling stock market index. Some leveraged inverse ETFs focused on the technology sector and the S&P 500 have experienced significant declines this year:

    • ProShares UltraPro Short QQQ (NASDAQ:SQQQ): -62.8%
    • Direxion Daily S&P500® Bull 3X Shares (NYSE:SPXL): -72.3%
    • ProShares UltraShort S&P500 (NYSE:SDS): -50.8%
    • ProShares UltraShort QQQ (NYSE:QID): -47.1%

    The increased inflow of $1.55 billion into ProShares UltraPro Short over the past 90 days suggests a growing belief that the Nasdaq rally may be coming to an end.

    While not all stocks in the technology sector have performed well this year, they are currently in the minority. According to Wall Street, 2 stocks have experienced significant declines in 2023 but are expected to show strong potential over the next 12 months. Let's use InvestingPro to try and see if that's the case.

    1. Enphase Energy/h2

    Enphase Energy (NASDAQ:ENPH) produces semiconductor-based devices used in the solar power industry.

    Its stock price started the year at $269.17 and has dropped to $152.15.

    This stock may still attract interest from ETFs but carries some risks. Market expectations suggest a significant earnings increase of +205% in 2023 and +33.9% in 2024 for the company.