Is TQQQ ETF A Buy After A 25% Rally In The Last Month? (NASDAQ:TQQQ)

Since I wrote my last article on the ProShares UltraPro QQQ ETF (NASDAQ:TQQQ) a little more than a month ago, the broader markets have rallied, leading to an approximate 25% return from the last week of June. I’m maintaining a hold for now, but the last month shows the power of the triple-leveraged exchange-traded funds (“ETFs”) if you have some skill (or luck, take your pick) on the short-term timing of the market. The other possibility is that you lose all those gains in a week as you feel the other side of the double-edged sword that are leveraged ETFs.

Investment Thesis

TQQQ has stayed on my watchlist for all of 2022, as I intend to hold my nose and buy a small position if the market selloff worsens. While TQQQ isn’t suitable for a large position, it could be an interesting way for investors to play a rebound in large-cap growth. I would rather be late to buy TQQQ than early, but it is hard to know when that is. While the markets have rallied as of late, the valuations on the major components of the ETF make me think we could see better prices to buy TQQQ ahead.

Top 10 Holdings

Most of you are familiar with the top 10 holdings of TQQQ. There has been some shuffling in 2022 due to some stocks being hit harder than others. For the most part, the top 10 is made up of the tech giants like Apple (AAPL) and Microsoft (MSFT).

Apple & Microsoft

I will be writing full articles on these two blue-chip tech giants at some point in the next couple of weeks, but my opinion on these two companies really hasn’t changed much, even after the most recent quarterly earnings. I held positions in both in the past, but I’m pretty much neutral on both with the current valuations. Because these two companies make up nearly a quarter of the ETF, they will be huge drivers of returns moving forward. If shares continue to bounce back like they have in the last month, with both up double digits, TQQQ should be just fine. If shares of Apple and Microsoft suffer, that will have an outsized impact on TQQQ, even if the rest of the stocks are performing better.

Amazon

Amazon.com, Inc. (AMZN) shares have had an even better run than Apple or Microsoft in the last month, as shares have jumped almost 30%. While I haven’t had much of a chance to dig into the most recent quarterly report yet, Amazon is the last big tech company I own. There is a lot of debate on the valuation, but I think it is attractive right now. As long as the advertising and AWS segments keep humming along, I will continue to own shares. They have been investing in the other segments of the business, which should pay off over the next couple of years.

Tesla, Google & Facebook

These three companies in the top 10 holdings are the tech companies that I have no interest in owning. The reasoning is different for all three, but I will keep this section brief. Tesla (TSLA) is the public company that most closely resembles a circus in my mind, with a P.T. Barnum-like character at the top in Elon Musk. I also have some nagging questions on their financials, stock sales, as well as other problems that keep me out of Tesla. Despite my caution on Tesla, the stock has rallied more than 30% in the last month.

Google (GOOG, GOOGL) and Facebook/Meta Platforms (META) have both had smaller rallies in the last month. Outside of the valuation and margin profile, there isn’t much that I like about either company, to be honest. I don’t like the companies, I don’t like their histories, I don’t like their operations, and I don’t like their founders. I know that these opinions might not be popular, but I would rather invest in other companies for a variety of reasons.

Nvidia

NVIDIA Corporation (NVDA) is the one company on the top 10 list that I have been looking closer at lately. Like Amazon and Tesla, Nvidia has seen a huge rally in the last month (30%). The valuation is still rich, but it has come down significantly from its peak in late 2021. I don’t think it’s a buy yet, but with the potential of the business over the next decade, Nvidia will be a stock that stays on my watchlist permanently. As far as the semiconductor industry goes, Nvidia is recognized as an innovator for several different areas, including crypto, gaming, and data centers, and the future looks bright to me.

Pepsi & Costco

PepsiCo, Inc. (PEP) and Costco (COST) are not tech companies like the others in the top 10 holdings, but they are also richly valued. They are up slightly over the last month. Both companies are trading well above their average multiples, and well above what I would consider fair value for a company growing at those rates. You can count on stable and growing dividends from both, but I would rather be selling both stocks than buying them.

Conclusion

TQQQ has rallied hard over the last month. While I want to own the ETF at some point, I’m not trying to be on the wrong end of a leveraged ETF because it can get ugly in a hurry. The top 10 is dominated by the large tech giants, but I think most of the companies are still too expensive to go long here. I am bullish on Amazon, and I like Nvidia as well, while that valuation is still expensive, so I’m hoping for a lower entry point. The rest of the top 10 isn’t appealing to me for various reasons. I plan to write up a handful of the top 10 in more detail at some point in the near future, but when it comes to TQQQ, I’m still waiting for the fear and capitulation sign that I’m looking for.