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All Contents © 2017The Kiplinger Washington Editors
By Richard Saintvilus
| July 2017
Chances are if you’re holding a bundle of S&P 500 stocks, as long as they’re not in telecom or energy, you’re having a pretty fine year.
Despite the turbulence over the past couple of weeks — particularly in large-cap tech stocks such as Apple Inc. (AAPL) and Facebook Inc. (FB) — the S&P 500 still is up roughly 9% this year. Corporate revenues and earnings are on the rise, and combined with possible tax windfalls and deregulation from the Trump administration, there are plenty of catalysts that can drive the index higher in 2017’s second half.
While energy and telecom stunk through the first six months of 2017, the best performers among the S&P 500’s top stocks come from a wide array of industries across six sectors, and all of them have delivered returns of at least 40%.
Let’s look at the 10 best S&P 500 stocks through the first half of 2017, and talk about whether they can sustain the momentum through the end of the year.
Prices and data are from the original InvestorPlace story published on June 28, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
YTD Performance: 42% vs. 9% for the S&P 500
Mettler-Toledo International Inc. (MTD), which manufactures and markets precision instruments for use in laboratory, industrial and food retailing applications, has been a surprising first-half performer.
The stock has soared 25% in three months thanks to better-than-expected first-quarter results. Despite operating in a niche industry, MTD runs a business that produces high margins and enjoys consistently growing demand.
Combined with growth initiatives from product launches — such as entry-level jewelry scales — combined with a strong focus on cost reduction, Mettler-Toledo remains an underrated manufacturing name that can continue to outperform its peers over the next few quarters.
YTD Performance: 43%
Hasbro, Inc. (HAS) makes children’s toys and family games globally, spanning brands such as Play-Doh and Monopoly, as well as licenses such as Star Wars, Frozen and Super Mario Bros.
Hasbro’s stock caught fire after the company beat Wall Street’s expectations on both the top and bottom lines for its fiscal first quarter. Adjusted earnings of 43 cents topped analysts’ projections by a nickel, while revenues of $849.7 million beat estimates by about $30 million.
Given Hasbro’s strong product lineup, and a decent 2% yield on HAS stock, shares look well-positioned to hold on to (and extend) their 2017 gains.
Industry: Managed Healthcare
YTD Performance: 44%
The Trump administration’s insistence on passing a bill that aims to repeal and replace the Affordable Care Act hasn’t seemed to do much to hold back Medicaid-focused healthcare insurer Centene Corp (CNC).
Although a repeal-and/or-replace would, on its face, seem to hurt stocks like CNC, the fact that shares have surged more than 40% to place among the best S&P 500 stocks suggests investors aren’t convinced any bill by the Republicans will actually get passed. That’s in part because many states that have expanded Medicaid under the ACA have Republican senators.
Meanwhile, Centene, which has beaten Wall Street’s earnings estimates in 11 straight quarters, continues to execute flawlessly. Just be careful. GOP success in gutting “Obamacare” could send CNC stock crashing to unhealthy levels.
YTD Performance: 47%
Micron Technology, Inc. (MU) designs and manufactures semiconductors, mainly in the arena of flash memory systems. And in general, chipmaking has been hot this year, evidenced by big gains by the likes of Nvidia Corporation (NVDA), Advanced Micro Devices, Inc. (AMD) and Broadcom Ltd (AVGO).
Micron, which has skyrocketed 47% higher year-to-date, is benefiting from improved pricing in the DRAM and NAND memory chip market, as well as improving margins.
And fundamentally, MU is stacking up a string of earnings beats that has extended to seven straight quarters. As long as that continues, don’t expect Micron to slow down.
Industry: Medical Devices
YTD Performance: 49%
Intuitive Surgical, Inc. (ISRG), which specializes in robot-assisted surgical procedures via its da Vinci Surgical System, continues to deliver strong operating performances thanks to rising customer adoption of procedures and growth in system placements.
Of late, ISRG’s strong results have been fueled by international growth; the company posted first-quarter revenues of $183 million outside the U.S., marking a 12% improvement year-over-year.
The Sunnyvale, California-based company placed 56 system orders, compared with 36 in the year-ago quarter and 63 in the fourth quarter. These included 21 orders in Europe, seven in Korea, six in India, six in Japan and two in China.
How does the future look? Well, Intuitive Surgical sees full-year 2017 procedure growth within 12% to 14%, up from the previously provided range of 9% to 12%.
The future sounds just fine.
YTD Performance: 52%
CSX Corporation — and railroad stocks as a group — continue to benefit from economic optimism despite challenges that have delayed tax-reducing legislation.
Headquartered in Jacksonville, Florida, CSX is a leading rail freight line, serving the eastern U.S. and Canada with over 21,000 miles of track, and with almost 66% of the U.S. population in its service area.
CSX stock is one of the best S&P 500 stocks of 2017, buoyed by a rebound in coal, thanks in large part to the promises of the Trump administration to revive American coal companies. Coal revenues surged 31% year over year in Q1, reaching $522 million thanks to to a 3% rise in volumes. Meanwhile, intermodal revenues climbed a healthy 7% YOY to $434 million.
It appears that investors are more than willing to bet that Trump is going to be friendly to coal, which will keep CSX high on the hog for quarters to come.
Industry: Resorts & Casinos
YTD Performance: 57%
Betting on Steve Wynn, CEO of Wynn Resorts, Limited (WYNN), has made investors a mint during the first half of 2017.
But after almost 60% year-to-date gains for WYNN stock, it’s time for investors to take a look at whether they should hold, buy more or take some money off the table. And that decision is heavily dependent on your view of how lucrative Macau — the only place in China where gambling is legal – can remain.
Macau gaming revenue soared almost 24% in May to roughly $2.83 billion, according to China’s Gaming Inspection and Coordination Bureau. This compares to the 16.5% gain that many analysts had expected. Notably, the rise marks the 10th straight month of growth for the year despite government efforts to curb money laundering.
How the gaming market will perform in the future is unknown. What is known is that Wynn is well ahead of the market and trades at 23 times forward earnings, making it more of a gamble going forward.
Industry: Dental Devices
YTD Performance: 58%
Align Technology, Inc. (ALGN), the designer and manufacturer of Invisalign System, operates through two segments: Clear Aligner and Scanner and Services segment. The former consists of its Invisalign System, and several smaller products, while the latter consists of intra-oral scanning systems including the iTero scanner and OrthoCAD services.
While overall revenue, which grew 30% year-over-year in Q1, continues to grow at a healthy rate, Align Technology heavily relies on the Invisalign segment, where it received some 90% of first-quarter revenue. This scenario presents significant risks.
ALGN’s business could thus take an outsize hit if dentist service organizations, orthodontists and general practitioners scale back on their orders.
Industry: Video Games
YTD Performance: 63%
Investors who have waited on the sidelines for a better entry point in Activion Blizzard, Inc. (ATVI) have been disappointed. Thanks to a string of revenue and earnings beats, the maker of blockbuster hits such as Call of Duty: Black Ops has seen its stock rise 63% in 2017, including 16% gains over the past three months.
Armed with its $6 billion acquisition of King Entertainment, the maker of Candy Crush Saga, Activision continues to benefit from a potent combination of increasing digital revenues and from the continued strength popular game titles such as World of Warcraft and Overwatch.
ATVI has muscle to spare in terms of content and scale, which should maintain its dominance of the gaming market for years to come.
YTD Performance: 78%
Lastly, Vertex Pharmaceuticals Incorporated (VRTX) is the best S&P 500 stock on the board, up nearly 80% amid a remarkable turnaround sparked by a string of earnings beats and positive clinical trial data from key drugs.
Vertex reported Q1 revenues of $714.7 million, which surged almost 80% year over year gaining from the upfront payment from Merck KGaA. Adjusted revenue of $482 million topped consensus expectation by 5%, while earnings of 41 cents per share were 30% ahead of analysts’ estimates.
The management raised fiscal 2017 guidance thanks to upbeat outlook for Kalydeco, used for the treatment of cystic fibrosis (CF). The company’s pipeline — which includes a portfolio of next-generation CF correctors — remains solid.
It seems investors are willing to bet that Vertex will continue to put up strong numbers in the months ahead.
This article is from Richard Saintvilus of InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.
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