Better Buy: Netflix Stock or Every Nasdaq Stock?
Netflix ( NFLX -0.27% ) is one of the tech giants that has carried the stock market since the pandemic started, but it might not be the best option for growth investors. You might be able to get just as much growth with substantially less risk by owning the entire Nasdaq 100 index.
Netflix is delivering strong growth
Netflix has enjoyed a lot of positive coverage in the news lately. Squid Game is one of the most watched shows of all time, with more than 140 million viewers in its first month. That’s a great way to attract and retain subscribers to keep those monthly cash flows coming.
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Netflix extended that momentum by posting great earnings results in October, exceeding Wall Street’s estimates for subscriber growth by 15% and earnings per share (EPS) by 25%. The company’s sales rose 16% over the prior year, and it expects to achieve similar results in the fourth quarter.
Netflix is creating the quality content that’s necessary to compete in the streaming video market with the likes of Apple, Alphabet, Amazon, Walt Disney, Comcast‘s NBC, and AT&T‘s HBO. It’s delivering a respectable growth rate for a company of that scale, which helps drive strong returns for shareholders.
Individual stocks vs. index investing
This is one of the great disputes among investors. Indexers have plenty of ammunition to support their approach. Indexes have produced decent long-term returns throughout the entire history of the stock market. Indexing isn’t time-consuming, and you don’t have to pay an expensive analysis and management team to implement it. Investors can use exchange-traded funds (ETFs) or mutual funds that are designed to track major indexes. The Invesco QQQ Trust ( QQQ 2.17% ) is an extremely popular market-cap-weighted ETF that mimics the performance of owning every stock in the Nasdaq 100.
Diversified portfolios drastically reduce company-specific risk, so no single stock can destroy your returns by experiencing unexpected struggles. It’s a simple, efficient, low-risk approach that’s produced sufficiently good results for most investors.
Index funds aren’t perfect, though. Diversification might reduce risk, but it also dilutes your gains. If you buy a whole index, then you’re buying the losers as well as the winners. Your returns are also completely at the mercy of market-wide dynamics, so you can’t expect to avoid losses in a bear market.
Ultimately, though, you can’t expect to beat the market if you own the market. If you want to maximize your long-term potential, indexes aren’t necessarily the way to do that.
Netflix vs. the Nasdaq
To compare these two options, we really need to understand the growth and risk profile of each.
Oddly enough, the Nasdaq is relatively similar to Netflix as far as these comparisons go. FAANG stocks and other tech giants have outpaced the market as a whole over the past 18 months. As a result, a small number of stocks now make up more of the index than ever before. The 10…