Yahoo Finance 5 S&P 500 Stocks to Gain the Most From Benchmark Rally
U.S. stock markets have turned around impressively from threats of the Omicron variant of coronavirus that rattled global bourses at the end of last month. Since Wall Street has resumed its northward journey, the possibility of a year-end rally looms large. Strong fundamentals of the U.S. economy will provide the primary support to U.S. stocks going forward.
At this stage, it will be prudent to invest in S&P 500 stocks with a favorable Zacks Rank to tap the market benchmark’s rally. Currently, several S&P 500 stocks are suitable for investment from which we have selected a handful. These are: Devon Energy Corp. DVN, ConocoPhillips COP, Hewlett Packard Enterprise Co. HPE, Tyson Foods Inc. TSN and Occidental Petroleum Corp. OXY.
Wall Street Recovers Omicron-Led Losses
On Nov 26, Wall Street along with almost all global bourses tumbled immediately after the resurgence of coronavirus in the form of a new variant, Omicron, spread from South Africa. However, market volatility stabilized at the beginning of the week as doctors and medical scientists from different parts of the world said that the early data shows Omicron may cause less severe infection than Delta.
As a result, on Dec 6, the Dow recorded its best single-day performance since March 2020. On Dec 7, the S&P 500 and Nasdaq Composite posted their biggest single-day gains since March 2020. The S&P 500 is just 0.3% below the pre-Omicron level and just 1.2% away from its all-time high registered on Nov 22.
At its current level of 4,686.75, the S&P 500 is well above its 50-day and 200-day moving averages of 4,552.33 and 4,313.30, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered a long-term trend setter.
Furthermore, it is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
Near-Term Drivers
In its latest projection on Dec 7, the Atlanta Fed reported that the U.S. economy would grow by 8.6% in fourth-quarter 2021. U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarters of this year, respectively.
Total third-quarter earnings of the market's benchmark — the S&P 500 Index —jumped 40.3% from the same period last year on 17.3% higher revenues. Moreover, in fourth-quarter 2021, total earnings of the S&P 500 Index are expected to increase 19.1% year over year on 11.2% higher revenues.
On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years. The infrastructure development project will be a major catalyst for the U.S. stock markets in 2022.
On Nov 19, the House of Representatives passed a massive $1.75 trillion social safety net and climate bill proposed by the Biden administration. The bill will now head toward the Senate.
Moreover, the White House has put pressure on Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease a shortage of the components vital to many industries.
Our Top Picks
Several good S&P 500 stocks are available for investment for the rest of this year. However, we have applied our VGM Style Score to narrow the search to the five stocks mentioned above. These companies are regular dividend payers, which will act as income stream during market’s downturn.
Additionally, these stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. 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 month.
Image Source: Zacks Investment Research
Devon Energy Corp. aims for strong oil production from the Delaware Basin holdings. Devon Energy’s presence in Delaware has expanded due to its all-stock merger deal with WPX Energy. DVN is using new technology in its production process to lower expenses.
Devon Energy’s divestiture of its Canadian and Barnett Shale gas assets will allow it to focus on its five high-quality oil-rich U.S. basins assets. DVN’s stable free cash flow generation allows it to pay dividend and buy back shares. Devon Energy has ample liquidity to meet near-term debt obligations.
Devon Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.9% over the last 30 days. DVN offers a current dividend yield of 1.04%.
Occidental Petroleum Corp. continues to increase hydrocarbon production volumes from its high-quality asset holdings and lower outstanding debts through the proceeds from non-core assets sale. The acquisition of Anadarko, investment to strengthen infrastructure and its Permian Basin exposure continue to boost the performance of OXY.
Occidental Petroleum has achieved the $10-billion divestiture goal through non-core assets sale. Its cost-management initiatives will boost margins going forward. OXY is also working to lower emission and aims for net-zero emissions by 2050.
Occidental Petroleum has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4% over the last 7 days. OXY offers a current dividend yield of 0.13%.
Hewlett Packard Enterprise Co. has benefitted from strong executions in clearing backlogs, improved supply-chain and increased customer acceptance. HPE’s efforts to shift focus to higher-margin products like Intelligent Edge and Aruba Central Hyperconverged Infrastructure is aiding its bottom-line.
Additionally, Hewlett Packard Enterprise’s target of saving at least $800 million annually by fiscal 2022-end through its cost optimization plan is a positive. Moreover, HPE’s multi-billion-dollar investment plan for expanding networking capabilities will help it to diversify business from server and hardware storage markets, and boost margins over the long run.
Hewlett Packard Enterprise has an expected earnings growth rate of 3.6% for the current year (ending October 2022). The Zacks Consensus Estimate for current-year earnings improved 1.5% over the last 30 days. HPE has a current dividend yield of 3.17%.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
Recently, ConocoPhillips announced an agreement to purchase all of Royal Dutch Shell’s assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days. COP has a current dividend yield of 2.53%.
Tyson Foods Inc. has benefitted from strength in the retail channel fueled by robust brands. TSN’s foodservice business rebounded as the restaurant industry started to reopen. Considering the continued strength in its Beef segment, management raised its fiscal 2021 sales guidance.
Tyson Foods has been focusing on acquisitions to expand its portfolio and boost sales volumes. Management of TSN remains focused on higher protein production to cater to the rising demand for protein-packed food.
Tyson Foods has an expected earnings growth rate of 0.6% for next year. The Zacks Consensus Estimate for next-year earnings improved 1.9% over the last 30 days. TSN has a current dividend yield of 2.20%.
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Devon Energy Corporation (DVN) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
Hewlett Packard Enterprise Company (HPE) : Free Stock Analysis Report
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