Back to top

Image: Bigstock

S&P 500 Hits Highest Level Since Feb 1: 4 Great Picks

Read MoreHide Full Article

The S&P 500 has witnessed robust performance in July so far. On Jul 24, U.S. stock markets’ benchmark index closed at its highest level since Feb 1, despite the fact that Wall Street has been reeling under several trade related and geopolitical concerns.

However, solid macro-economic fundamentals, government’s tax reform and deregulation policies along with sustained strong earnings performance are key catalysts behind boosting investors’ confidence on risky assets like equities. At this stage, investment in S&P 500 stocks with favorable Zacks Rank with attractive year-to-date return will bode well for investors.

S&P 500 Hits Record High Level

On Jul 24, the S&P 500 gained 0.5% to close at 2,820.40. This was the highest closing of the broad-market index since Feb.1 when it closed at 2,821.98. The index rose 3.8% in the last month, while it increased 5.5% year to date.

In the three weeks of July, the index advanced 1.5%, 1.5% and 0.1%, respectively. The benchmark index is currently above both its 50-days and 200-days moving average. These are important psychological barriers, indicating both short-term and long-term momentum of the S&P 500.

Tech Stocks Propels the S&P 500

Strong performance of  the S&P 500 on Jul 24 can primarily be attributed to robust second-quarter 2018 earnings results of tech giant Alphabet Inc. (GOOGL - Free Report) . Consequently, the share price of Alphabet advanced 3.9%. During the trading session, the stock touched its record high level of $1,275.

Strong showing by Alphabet raised investor’s expectations on other FAANG stocks that are yet to declare results. For instance, share price of Facebook Inc. and Amazon.com Inc. (AMZN - Free Report) were up 1.8% and 1.5%, respectively.

Notably, technology sector has been the major driver of the S&P 500 in 2018 so far. Year-to-date, this Technology Select Sector SPDR (XLK) rose 14.7% followed by Consumer Discretionary Select Sector SPDR (XLY) of 13.2%.

Strong Earnings Momentum

Market participants are expecting strong showing by American corporates as second-quarter earnings season is in full swing. Up to Jul 20, 87 S&P 500 members have reported earnings results. For those companies, earnings were up 20.9% from the same period last year on 10.3% higher revenues.

Total earnings of the S&P 500 index is anticipated to be up 21% in second-quarter 2018 from the same period last year driven by 8.3% year-over-year growth in revenues. (Read More: Q2 Earnings Season Showing Strong Revenue Momentum)

Our Top Picks

Massive tax cut, steady economic activities and business-friendly policies adopted by the government will pave the way for further upside in stock market. Consequently, investment in S&P 500 stocks will be lucrative. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to four S&P 500 stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A with attractive returns year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our four picke year to date.

W.W. Grainger Inc. (GWW - Free Report) is the leading broad line supplier of facilities maintenance products serving businesses and institutions throughout North America. The stock provided 45% returns year to date. W.W. Grainger has expected earnings growth of 38% for current year. The Zacks Consensus Estimate for the current year has improved by 5.7% over the last 60 days.

Micron Technology Inc. (MU - Free Report) is one of the world's leading providers of advanced semiconductor solutions. The stock provided 32% returns year to date. Micron Technology has expected earnings growth of 136.3% for current year. The Zacks Consensus Estimate for the current year has improved by 1.6% over the last 60 days.

ConocoPhillips (COP - Free Report) is a major global oil exploration and production company with operations worldwide. The stock provided 27.5% returns year to date. ConocoPhillips has expected earnings growth of 625% for current year. The Zacks Consensus Estimate for the current year has improved by 13.6% over the last 60 days.

CarMax Inc. (KMX - Free Report) operates as a retailer of used cars. The company also sells vehicles through on-site wholesale auctions, as well as new vehicles under franchise agreements. The stock provided 21.2% returns year to date. CarMax has expected earnings growth of 24.3% for current year. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 60 days.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Published in