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Top 5 S&P 500 Stocks at Lucrative Valuation Amid May Turmoil

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A common adage of Wall Street — "sell in May and go away" — as been proven right so far this month. Wall Street's benchmark — the S&P 500 Index — is down 1.3% month to date. The ongoing turmoil is predominantly owing to market participants' growing concern about an impending inflation this year.

Investors' anticipation that the Fed may be compelled  to end its easy monetary policy and hike the benchmark interest rate is detrimental to growth stocks, especially the technology sector.

The recent market meltdown is primarily due to a stiff decline of technology stocks. This is evident from the fact that the tech-heavy Nasdaq Composite has fallen 4.7% month to date while the Dow, which is more inclined toward reopening stocks, is up 0.5% in the same period.

Meanwhile, several S&P 500 stocks, outside the technology sector, are currently trading at an attractive valuation. A handful of those stocks carries a favorable Zacks Rank. Investment in these stocks is likely to strengthen one's portfolio in the near future.

Market Likely to Remain Northbound

The recent meltdown of Wall Street may be a temporary phenomenon and the market will remain northbound. The Fed has said repeatedly that any inflation this year will be transitory and the labor market is yet to recover fully.

The Biden administration's priorities of nationwide COVID-19 vaccination and easing of the pandemic situation are the primary growth drivers of the reopening stocks.

On May 13, Dr. Rochelle Walensky — Director of the Centers for Disease Control and Prevention — said that American's who are fully vaccinated need not wear a mask or stay six feet away from others in most settings, whether outdoors or indoors, excluding travel.

On May 4, President Joe Biden announced that the latest target of his administration is to get 70% of U.S. adults receive at least one dose of a COVID-19 vaccine and have 160 million adults fully vaccinated by Jul 4.

Moreover, Americans have a gigantic $2.3 trillion of excess or forced savings from their locked-in period. Massive pent-up demand together with unprecedented personal savings should drive consumer spending in the near future. This is evident from a 10.7% jump in consumer spending in first-quarter 2021. Higher consumer spending is likely to boost demand for reopening stocks.

Strong Earnings Expectations

Total earnings of the S&P 500 companies were down 13.1% on 1.7% lower revenues in pandemic-ridden 2020. Following the reopening and strengthening of the economy, the first-quarter 2021 earnings are like to jump 46.7% on 9.5% higher revenues year over year.

Moreover, as of May 14, our consensus estimate has shown that total earnings of the S&P Index in 2021 are likely to climb 32.7% on 9.7% higher revenues year over year. Thereafter, earnings are likely to grow 12% on 6.4% higher revenues in 2022 and 11.2% on 4.8% higher revenues in 2023. (Read More: Revved Up Auto Sector Earnings Outlook)

Our Top Picks

We have narrowed down our search to five large-cap (market capital $10 billion) S&P 500 stocks that have attained a 52-week high this year but are currently trading at a deep discount.

These stocks have strong growth potential for the rest of 2021 and have witnessed solid earnings estimate revisions within the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

 

PulteGroup Inc. (PHM - Free Report) is engaged in the homebuilding and financial services businesses, mainly in the United States. It conducts operations through two primary business segments –- Homebuilding and Financial Services.

This Zacks Rank#1 company has an expected earnings growth rate of 47.1% for the current year. The Zacks Consensus Estimate for the current year has improved 25.1% over the last 30 days. The stock is currently trading at a 12.2% discount from its 52-week high attained on May 10.

Weyerhaeuser Co. (WY - Free Report) is one of the leading U.S. forest product companies with operations primarily concentrated in Southern California, Nevada, Washington, Texas, Maryland and Virginia. It caters to a diverse clientele spread over the United States, Canada, Japan, Europe and other regions.

This Zacks Rank#1 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 28.6% over the last 30 days. The stock is currently trading at a 10.5% discount from its 52-week high attained on May 10.

General Motors Co. (GM - Free Report) designs, builds, and sells cars, trucks, crossovers and automobile parts worldwide. It operates through the GM North America, GM International, Cruise and GM Financial segments.

This Zacks Rank#2 company has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for the current year has improved 3.9% over the last 30 days. The stock is currently trading at an 11.9% discount from its 52-week high attained on Apr 6.

Illumina Inc. (ILMN - Free Report) is a life sciences company, which provides tools and integrated systems for analysis of genetic variation and function. It operates in two segments, Core Illumina and Consolidated VIEs.

This Zacks Rank#2 company has an expected earnings growth rate of 33.1% for the current year. The Zacks Consensus Estimate for the current year has improved 8.7% over the last 30 days. The stock is currently trading at a 30.5% discount from its 52-week high attained on Feb 12.

Marriott International Inc. (MAR - Free Report) operates, franchises, and licenses hotel, residential, and timeshare properties worldwide. It operates through the North American Full-Service, North American Limited-Service, and Asia Pacific segments.

This Zacks Rank#2 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 7.3% over the last 30 days. The stock is currently trading at a 12.6% discount from its 52-week high attained on Feb 25.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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