Despite a robust Q3 earnings reporting season characterized by widespread positive surprises, technology stocks have been aggressively beaten down as investors focus heavily on soaring capital expenditure and slowing monetization timelines. The selling pressure intensified as an after-effect of the negative Wall Street reaction to Elon Musk’s high-theatrics flying car Tesla Roadster demonstration, which stoked broader concerns that top tech leadership is prioritizing speculative, regulatory-blocked projects over immediate core profitability.
The great rotation out of premium-priced tech and into value has steadily continued. Cyclical and defensive sectors—specifically Energy, Utilities, and Healthcare—continue to display prominent relative strength. As the calendar flips to November, the probability of the market switching gears into a broad rally is historically high. November has fundamentally been one of the strongest price-change months of the year, a phenomenon that is particularly amplified during midterm election years. Historically, getting past the policy uncertainty of the early-November midterms triggers a post-election pop that has historically seen the market rise in the vast majority of midterm Novembers.
With political analysts highlighting a strong probability that control of the House of Representatives could swing to the Democrats, the market is bracing for a return to legislative gridlock. Historically, Wall Street treats Washington gridlock as a net positive; when neither party can pass sweeping regulatory overhauls or major tax changes, policy volatility drops, allowing the market to refocus entirely on corporate fundamentals.
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The tech sector as a whole is not a blanket bargain, but it has become an increasingly attractive stock-picker’s market. The indiscriminate selling has dragged down high-quality companies whose underlying fundamentals remain intact despite the macro AI expenditure noise. Focus should shift to mega-caps with resilient consumer demand and enterprise software providers showing immediate, realized AI monetization rather than purely speculative build-outs. The technical pullback in major technology companies has dragged Relative Strength Index metrics down to highly attractive entry boundaries, separating companies with temporary valuation compression from structural losers. Here are 3 examples from the erstwhile “Magnificent Seven.” After each stock, we list our ValuEngine forecast ratings with 5 being Strong Buy, 3 being hold or neutral, and 1 being Strong Sell.
- NVIDIA (NVDA), 5, remains the absolute market leader with all its advantages still intact despite fears from some analysts. While capital expenditure digestion triggers short-term anxiety, its dominant role in core data center infrastructure remains fundamentally unchanged.
- Meta Platforms, Inc. (META), 3 is trading at deeply oversold levels. Despite macro noise, Wall Street highlights robust near-term advertising revenues and accelerated enterprise software scale, pending legal tussles notwithstanding.
- Alphabet Inc. (GOOGL), 5 sits firmly in oversold territory. Analysts emphasize that growth in cloud infrastructure optimization and search monetization platforms provides massive fundamental support despite broad sector selloffs.
We always get excited about stock-pickers markets because the ValuEngine Ratings system truly has shined historically when the market’s focus returns to earnings over geopolitically driven macro-trends. Given that the tech pullback has been valuation driven, it seemed to be a perfect time to run a screen using our basic platform tools.
The following table lists the top ten companies rated 5 (Strong Buy) in order of most undervalued by our proprietary valuation model. The table also screens out any stocks with less than $20 billion in market capitalization and stocks without a positive value calculated for earnings growth.
| Ticker | Company Name | 10/23 close | Fair Value | Valuation Rank | Forward P/E Ratio | PEG | Div. Yield |
| CLS | CELESTICA INC | 260.01 | 480.83 | 91 | 16.2 | 0.37 | 0.0% |
| FLEX | FLEX LTD | 76.55 | 140.87 | 91 | 14.7 | 0.44 | 0.0% |
| CRDO | CREDO TECH GRP | 147.29 | 254.57 | 90 | 21.3 | 0.41 | 0.0% |
| LRCX | LAM RESEARCH | 230.10 | 373.3 | 88 | 22.9 | 0.70 | 0.6% |
| LITE | LUMENTUM HLDGS | 756.17 | 1,160.53 | 87 | 33.2 | 0.57 | 0.0% |
| STX | SEAGATE TEC HLD | 630.49 | 996.94 | 87 | 14.9 | 0.28 | 0.5% |
| AMAT | APPLD MATLS INC | 377.24 | 574.27 | 86 | 21.1 | 0.66 | 0.6% |
| CIEN | CIENA CORP | 320.26 | 470.82 | 85 | 32.6 | 0.78 | 0.0% |
| VRT | VERTIV HOLDINGS | 194.32 | 284.93 | 85 | 22.9 | 0.74 | 0.1% |
| AMD | ADV MICRO DEV | 516.79 | 697.32 | 82 | 44.1 | 0.83 | 0.0% |
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A brief description of the above selected 5-rated companies follows:
- CLS (Celestica Inc.): Incorporated in 1996 and headquartered in Ontario, Canada, Celestica provides complex design, manufacturing, and supply chain solutions for hardware applications across the cloud, aerospace, and defense sectors.
- FLEX (Flex Ltd.): Incorporated in 1990 and headquartered in Singapore, Flex delivers diversified manufacturing, design, and logistics services globally to consumer electronics, automotive, and healthcare brands.
- CRDO (Credo Technology Group Holding Ltd.): Incorporated in 2014 and headquartered in Grand Cayman, Cayman Islands, Credo provides high-speed connectivity solutions and energy-efficient digital signal processing hardware for enterprise networks and data centers.
- LRCX (Lam Research Corp.): Incorporated in 1980 and headquartered in California, Lam Research designs, manufactures, and services thin-film deposition and plasma etch equipment crucial for advanced semiconductor manufacturing.
- LITE (Lumentum Holdings Inc.): Incorporated in 2015 and headquartered in California, Lumentum manufactures optical components, commercial lasers, and photonic subsystems used in telecommunications routing and 3D sensing applications.
- STX (Seagate Technology Holdings plc): Incorporated in 2010 (originally founded in 1979) and headquartered in Dublin, Ireland, Seagate designs and manufactures precision data storage solutions, including hard disk drives and solid-state storage systems.
- AMAT (Applied Materials Inc.): Incorporated in 1967 and headquartered in California, Applied Materials provides the specialized manufacturing equipment, software, and services needed to fabricate microchip displays and advanced semiconductors globally.
- CIEN (Ciena Corp.): Incorporated in 1992 and headquartered in Maryland, Ciena specializes in optical and routing networking equipment, software systems, and data-transport automation services for major telecommunication carriers.
- VRT (Vertiv Holdings Co): Incorporated in 2016 (with roots dating back to 1953) and headquartered in Ohio, Vertiv provides mission-critical digital infrastructure hardware, power cooling management, and integration services for modern data centers.
- AMD (Advanced Micro Devices Inc.): Incorporated in 1969 and headquartered in California, AMD develops high-performance computing microprocessors, graphics chips, and adaptive server processors used across corporate data hubs and consumer devices.
Of these ten stocks, four (CLS, STX, FLEX and VRT) report this week and two (LITE and AMD) report next week. Since this earnings-season market has returned its focus to earnings reports, these undervalued companies with profiles consistent with continued positive surprises are well positioned to benefit.
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Moving on from the focus on technology, oversold opportunities don’t always rebound as soon as analysts identify them. Active traders should look for corroborative technical trading signals before jumping back in. Meanwhile, value-oriented sectors continue to digest active capital inflows as investors seek immediate fundamental visibility, dividend protections, and macro insulation. This brings us to our year-to-date and month-to-date updates on 13 different ETFs that we regularly use as asset class proxies.
We point out a number of departures in this week’s array of comparative asset class ETFs. All replacements were to ETFs that hold identical portfolios but with much lower expense ratios. We have replaced:
IWM as our old small cap proxy with VTWO;
MDY as our old midcap proxy with SPMD;
EEM as our old emerging markets proxy with IEMG; and
IBIT as our old Bitcoin trust proxy with MSBT.
These choices are consistent with our longstanding choices of using:
SPYM as our large cap index ETF proxy in lieu of SPY;
QQQM as our Nasdaq-100 proxy in lieu of QQQ; and
GLDM as our proxy for Gold trusts in lieu of GLD.
| Company Name | Ticker | VE RATING | YTD Price Change | October Price Change | Forward P/E | Dividend Yield | Expense Ratio |
| State Street SPDR Portfolio S&P 500 ETF | SPYM | 4 | 11.20% | -0.50% | 22.3x | 1.3% | 0.02% |
| Invesco NASDAQ 100 ETF | QQQM | 5 | 14.80% | -5.10% | 26.5x | 0.6% | 0.15% |
| Vanguard Russell 2000 ETF | VTWO | 3 | 10.90% | -1.20% | 15.8x | 2.5% | 0.06% |
| SPDR Portfolio S&P 400 Mid Cap ETF | SPMD | 3 | 8.40% | -0.50% | 16.2x | 1.2% | 0.03% |
| `Vanguard Morningstar Value ETF | VTV | 3 | 17.20% | 4.10% | 17.2x | 4.1% | 0.03% |
| Vanguard Morningstar Growth ETF | VUG | 4 | 7.40% | -4.40% | 34.7x | 0.3% | 0.03% |
| Schwab U.S. Dividend Equity ETF | SCHD | 2 | 27.10% | 8.10% | 16.5x | 3.4% | 0.06% |
| Innovator U.S. Equity Power Buffer ETF – October | BUFR | N/A | 6.20% | 0.20% | 19.8x | 0.0% | 0.95% |
| Vanguard FTSE All-World ex-US ETF | VEU | N/A | 8.10% | -2.00% | 13.9x | 2.9% | 0.04% |
| iShares Core MSCI Emerging Markets ETF | IEMG | N/A | 10.30% | -7.20% | 12.4x | 1.2% | 0.09% |
| 1SPDR Gold MiniShares Trust | GLDM | N/A | -7.71% | 4.20% | N/A | 0.0% | 0.10% |
| Morgan Stanley Bitcoin Trust | MSBT | N/A | 48.60% | 11.40% | N/A | 0.0% | 0.14% |
| iShares 20+ Year Treasury Bond ETF | TLT | N/A | -7.20% | 5.30% | N/A | 3.9% | 0.15% |
Current ValuEngine reports on all covered 5000+ stocks and ETFs can be viewed HERE
Top 10 Analytical Insights
1. The Yield Quality Premium: We use SCHD as our proxy for a classic “GARP” (Growth at Reasonable Prices) strategy. The strategy hasn’t had a more resilient year with respect to the S&P 500 since 2018. The out-performance of SPYM by nearly 1,600 basis points YTD (+27.10% vs +11.20%) proves that the rally under the surface has completely moved away from speculative market cap components and concentrated purely into low-multiplier, high-cash-flow vehicles.
2. Energy and Tech Divergence: While XLK (+20.40% YTD) still leads over a multi-month view, it surrendered -5.80% in October. Conversely, XLE (+24.15% YTD) has decisively seized the leadership throne, jumping +6.50% this month on commodity spot pricing and defensive rotation.
3. The “Sell America” Trade of 2025 is Dead – at Least for Now – After impressive 2025 and first quarter 2026 returns for VEU and IEMG vs. SPYM, things have reversed and the dollar has strengthened relative to the Euro. To put it another way, continental Europe was hit even more severely by the dramatic rise in petroleum prices than the US has been.
4. Consumer Stark Realities: The worst-performing domain across the entire landscape remains Consumer Discretionary (XLY) at -6.04% YTD. Paired with a -2.98% drop in October, this underscores a profound consumer stagnation and persistent economic friction facing non-necessary discretionary spending.
5. Utilities, as measured by XLU, has a flat YTD return (+0.95%) that hides a wild narrative. Utilities are not coasting on a smooth multi-month AI boom; instead, they have spent most of the year digesting the drag of a 5.10% 10-Year Treasury yield.
6. Value vs. Growth Internal Multiples: The vast valuation spread between VUG (34.7x forward P/E) and VTV (17.2x) shows exactly why a minor margin surprise in tech causes a deep -5.1% drop in QQQM while capital slides seamlessly into value plays.
7. The Bitcoin Volatility Decoupling: IBIT (+48.6% YTD) has cleanly decoupled from gold (GLDM). While both are labeled as alternative stores of value, IBIT‘s massive +11.4% October surge indicates it is absorbing the liquidity that historically fled directly into bullion. Alternatively, GLDM’s -7.71% YTD print underlines a fierce regime change. Despite ticking up +4.2% in October, gold has fundamentally failed to function as the primary inflation haven this year, vastly trailing alternative asset frameworks.
8. Defensive Bond Rebound Dynamics: Long bonds (TLT) climbing +5.3% in October mirrors a significant structural macro shift. The market is aggressively positioning for lower yields or macro protection as corporate capex numbers rattle the equity sector. This is the first time since January that TLT’s YTD return has been positive for the year-to-date.
9. Defensive Staples and Healthcare Stability: Both XLP (+8.10% YTD) and XLV (+9.40% YTD) showed clear positive accumulation in October, demonstrating that foundational multi-period portfolios are actively anchoring positions in anti-cyclical, resilient spaces.
10. Broad Market Breadth Insulation: While large-cap growth indexes show technical fatigue, the equal-weighted tail of IWM (+10.9% YTD) and small/mid-cap layers confirm that domestic balance sheets remain resilient outside of the high-concentration mega-caps.
As usual, we apply a similar analysis to the Select Sector SPDRs on this follow-up table. SPYM and SCHD are repeated for easy reference.
|
StateStreet Select Sector SPDR ETF |
Ticker | VE Rating |
YTD Price Change |
October Price Change |
Forward P/E |
Dividend Yield |
| Materials Select Sector |
XLB |
2 |
6.30% |
-0.40% |
19.5x |
1.9% |
| Communication Services Select Sector |
XLC |
2 |
12.30% |
-3.20% |
18.9x |
1.1% |
| Energy Select Sector |
XLE |
5 |
24.15% |
6.50% |
12.8x |
2.2% |
| Financials Select Sector |
XLF |
3 |
11.20% |
1.40% |
15.3x |
1.5% |
| Industrials Select Sector |
XLI |
2 |
13.60% |
1.10% |
20.1x |
1.1% |
| Technology Select Sector |
XLK |
5 |
20.40% |
-5.80% |
27.8x |
0.4% |
| Consumer Staples Select Sector |
XLP |
1 |
8.10% |
1.70% |
21.2x |
2.7% |
| Real Estate Select Sector |
XLRE |
1 |
4.20% |
-1.10% |
31.4x |
3.1% |
| Utilities Select Sector |
XLU |
1 |
0.95% |
2.90% |
17.9x |
2.9% |
| Health Care Select Sector |
XLV |
3 |
9.40% |
0.80% |
18.2x |
1.4% |
| Consumer Discretionary Select Sector |
XLY |
1 |
-6.04% |
-2.98% |
24.6x |
0.9% |
| SPDR Portfolio S&P 500 ETF |
SPYM |
4 |
11.20% |
-0.50% |
22.3x |
1.3% |
| Schwab U.S. Dividend Equity ETF |
SCHD |
2 |
27.10% |
8.10% |
16.5x |
3.4% |
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Observations:
- Our ratings continue to be positive on only two sectors: Technology and Energy. Technology (XLK) has been ranked 5 (Strong Buy) all year while XLE has been rated 4 (Buy) most of the year until recently being elevated to 5. Since earnings reports and revisions in the Technology sector continue to be positive, it is still maintains its 5 rating despite a whopping 5% loss month-to-date.
- Energy (XLE) has now surpassed Technology (XLK) as the most profitable select sector SPDR on a year-to-date basis. With a forward P/E of just 12.8 and a history of lengthy rebound cycles, the sector may still have room to run.
- Despite a roller-coaster year in terms of interest rate fears and expectations and amidst a change of Fed Chairmen, Finance (XLF) continues to enjoy a strong year. A gain of 1.4% month-to-date in contrast with the drop of 0.5% experienced by SPYM now has both tied for year-to-date gains at 11.2%. Utilities (XLU) and Health Care (XLV) are also enjoying positive months thus far. In the case of XLU, it has been just strong enough to bring its year-to-date return back in positive territory. Health Care also trades at a very reasonable 18.2 forward P/E multiple.
- Consumer Staples (XLP) are suddenly back in vogue as portfolio managers turn to the security blankets and stable earnings streams provided by big brand names. Its 21.2 forward P/E, more consistent with a growth sector, indicates that this sector might be overbought. Despite another strong month, taking its year-to-date return of over 8%, our ratings remain skeptical and a 1 (Strong Sell) rating remains on the sector. In much worse shape, however, is the Consumer Discretionary (XLY) sector, also rated 1. It is the only sector down both month-to-date and year-to-date. Despite these drops, a 24.6 forward P/E indicates the stocks in the sector as weighted by float-adjusted market cap, are still not cheap.
- Meanwhile, our proxy for the GARP strategy, SCHD, compares favorably to at least 9 of the 11 sectors on almost every metric other than VE Rating. Clearly this index’s selection process has been ahead of the curve thus year.
Herb Blank
ValuEngine.com Senior Quantiative Analyst
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