Given the market’s mayhem since April, you might be surprised to learn that the major indices aren’t doing all that bad in 2012. The Dow Jones Industrial Average is up 5% as of this writing, and the S&P 500 is up almost 8%. Many of their components are up significantly more than that, too, tallying 30%, 50% even 70% gains in the first six months of the year.
As we mark the halfway point of 2012, it’s worth taking a look back at some of these top performers to see the story the market is telling us. While there admittedly are big troubles hanging over the global economy in the form of Europe’s debt crisis and persistently high unemployment numbers at home, certain sectors and specific companies are knocking it out of the park.
And some of these businesses might surprise you.
To help highlight the hottest major companies on Wall Street right now, this list features the five best Dow Jones Industrial Average components and the five best S&P 500 components. These are all stocks of significant size, so their gains are worth noting.
Here’s the list:
#5 Dow Stock: AT&T
YTD Gain: 17%
The No. 5 spot in the Dow goes to telecom blue chip AT&T (NYSE:T), up 17% as of this writing.
The sleepy stock is well-known among dividend investors for its payout potential — a nice 5% yield right now — but hasn’t exactly been an icon of growth. After all, there are only so many cell phones and so many businesses to hook up to the Internet. In many ways, AT&T is a utility stock more than a communications company. It is in a highly regulated industry, it enjoys a virtual duopoly with Verizon (NYSE:VZ) even without its failed T-Mobile buyout, and it has a scale and reach that no upstart competitor can realistically challenge considering the capital-intensive nature of telecommunications networks in the 21st century.
So why has AT&T soared in 2012? Well, because of the “flight to safety,” similar to what we saw in late 2011 that boosted utility stocks and other safe-haven investments. As the eurozone melts down and unemployment remains troublesome at home, investors are looking for stability above all else. That has prompted big demand for AT&T stock, pushing it to a new 52-week high.
#4 Dow Stock: American Express
YTD Gain: 23%
American Express (NYSE:AXP) has had a very good year as financial stocks have gotten some spring back in their steps. But the big banks and American Express have little in common beyond the broad label of “lenders.”
For starters, American Express is more stable. It has a healthier balance sheet by virtue of avoiding the worst of the mortgage mess. As a result, AmEx never has run afoul of the Federal Reserve, with an impressive Tier 1 capital ratio near 11% — in the top three of the entire financial sector, according to Fed “stress tests.” Its dividend never was reduced and was granted an increase to 20 cents a quarter just this March. The Fed also authorized a $5 billion share repurchase program.
American Express does have exposure to consumer debt, and its business arm obviously does better when corporations and small businesses are confident and spending more. But AXP shares have eclipsed 2008 levels and are challenging highs not seen since the market’s peak in 2007. Clearly, investors think the pros outweigh the cons.
#3 Dow Stock: Home Depot
Sector: Specialty Retail
YTD Gain: 26%
Home improvement retail stock Home Depot (NYSE:HD) might surprise you on this list, since the housing market remains one of the biggest trouble spots in the U.S. economy. But it’s actually this softness in housing that is helping Home Depot. As folks stay in their houses longer, they are eager to spruce them up or forced to do repairs if they run into some bad luck.
What’s more, the glimmers of hope in the housing market have some people considering dressing up properties to sell — which made many investors think that now is the perfect time to invest in HD stock.
Fiscal 2012 revenue are on pace to top 2009 levels, and HD is riding four straight quarters of both year-over-year EPS and sales growth. The housing market is undoubtedly cyclical, but judging by the share price, many investors think Home Depot is returning to favor.
#2 Dow Stock: Disney
YTD Gain: 29%
The Mouse House is alive and well in 2012, with The Walt Disney Co. (NYSE:DIS) cranking out big gains in the first half of the year. That’s thanks in part to breaking box-office records with its superhero flick The Avengers, but also because of an increase in theme park traffic. And let’s not forget double-digit gains in cable and broadcast divisions in Disney’s last earnings report, thanks to properties like ESPN and ABC Family.
Looking forward, this media giant is not resting on its laurels. You can bet Disney is banking on important merchandising from its hits like The Avengers, as well as keeping the company focused on the future with a great pipeline of future offerings and sequels.
It’s worth noting the stable leadership and great performance of DIS over the long term, too. The company’s top exec, Bob Iger, is one of the best CEOs in the Dow Jones, leading the stock to gains of more than 110% since he took over in 2005.
#1 Dow Stock: Bank of America
YTD Gain: 45%
Yes, that dog with fleas Bank of America (NYSE:BAC) is the top performer in the Dow for the first half of the year. No, the company hasn’t raised its dividend from a penny per quarter — and didn’t even bother asking the Fed permission for a bump in 2012 after the central bank’s BofA dividend denial. No, the weight of bad mortgage debt isn’t completely off the books. No, the tea leaves of future regulatory impact haven’t gotten any easier to read.
But apparently, investors still thought the negativity was overdone.
After all, even after the run-up, Bank of America is trading at around 60% of its tangible book value. That’s still a decent cushion, and previous valuations apparently seemed too cheap to pass up.
However, it’s worth noting that BAC does 200 million shares a day on average — mostly via computers doing their high-frequency trading tactics. In fact, 5% to 10% of daily NYSE volume is on Bank of America trades alone! We can ascribe all the logic we like to the run-up of this top Dow stock, but the aid of algorithms has to be acknowledged.
#5 S&P Stock: Regions Financial
YTD Gain: 56%
Regions Financial (NYSE:RF) is, obviously, a regional financial stock. This sector has been doing quite well in 2012, with some standouts doing better even then major financial stocks that have been bouncing back.
That’s because major financial stocks like Bank of America (NYSE:BAC) continue to suffer under poor acquisitions, massive mortgage debt and the ire of regulators after the “too big to fail” nonsense of 2008. Regional banks, while still subject to safeguards enacted by the Federal Reserve, weren’t as “levered up” during the meltdown and thus have an easier time showing regulators and investors they are in good shape.
Specifically, Regions operates throughout the South, Midwest and Texas. This area isn’t exactly booming — and in fact, 2012 will be Regions’ first profitable year since before the financial crisis gutted its balance sheet. But as with Bank of America, this is a case of being “less bad.” Regions still is down about 80% from pre-Lehman levels, but that hasn’t stopped it from rallying strongly to start the year on turnaround hopes.
Of course, while there are differences between RF and BofA, the fact remains that bad debt and consumer confidence are troublesome for any bank these days. That’s important to keep in mind if Regions Financial is to build on its 2012 gains.
#4 S&P Stock: PulteGroup
YTD Gain: 66%
The housing market clearly is not going like gangbusters right now. But that hasn’t held back homebuilder stock PulteGroup (NYSE:PHM). Why? Well, because investors know there’s no better time to buy a stock than at the bottom — and many feel like we are at or near a bottom in homebuilders.
The gains haven’t been limited to PulteGroup. Smaller builders Ryland Group (NYSE:RYL) and M/I Homes (NYSE:MHO) have both tallied similar gains year-to-date. That’s because there seems to be optimism about the state of the housing market based on recent positive housing data. There also are hopes that consumer finances are slowly mending and low interest rates will incite buyers.
Fundamentally, PHM isn’t much to write home about. It just posted a loss in Q1, and revenue remains down significantly from just a few years ago let alone the peak performance before the financial crisis. But investors clearly are making a directional bet on housing right now, and PHM has soared as a result.
#3 S&P Stock: Expedia
Sector: Consumer Discretionary
YTD Gain: 67%
If you think Expedia (NASDAQ:EXPE) spun off TripAdvisor (NASDAQ:TRIP) to hide troubles in its core business, think again. The fact is the online airfare and hotel booking service is doing brisk business and thriving as TripAdvisor sends referrals its way.
It’s a no-brainer that as folks research a vacation on TripAdvisor, they eventually will need to make travel plans — and Expedia is growing in kind with its sister site. What’s amazing is that Expedia revenue is almost exactly where it was a year ago — before TRIP was spun off as a separate company and the sales were backed out of its parent company!
Investors like both of these stocks because of the international appeal. Expedia serves 25 countries and is growing its reach all the time. If and when the European debt crisis resolves itself, you can bet that travel bookings will increase to the region and push sales even higher. It goes without saying that a turnaround in consumer confience could mean even bigger gains for EXPE.
#2 S&P Stock: TripAdvisor
Sector: Consumer Discretionary
YTD Gain: 80%
With a market cap of $6 billion, you might have not heard of online travel company TripAdvisor (NASDAQ:TRIP). The site was spun off of Expedia (NASDAQ:EXPE) at the end of 2011 to focus not on offering travel booking but rather travel research. It features lists of the best hotels in popular destinations, the most popular restaurants in big cities and a forum for travelers to share their own experiences.
Folks seem to like the info from TripAdvisor — but most importantly, international audiences find the product appealing. The website is up and running in 30 different nations, including China under the brand daodao.com. This allows TripAdvisor to not just rake in the revenue from display ads on its site, but partner up with travel agencies to allow visitors to book trips directly (for a small finder’s fee, of course).
This broad international reach and rapid growth means TripAdvisor is tracking a 20% revenue jump in fiscal 2012 after its spin-off last year. TRIP stock has soared as a result.
#1 S&P Stock: Sears
YTD Gain: 86%
Sears (NASDAQ:SHLD) isn’t exactly the belle of the ball. In late 2011, it announced it would close more than 100 underperforming Sears and Kmart stores. The company is projected to operate at a loss through 2014. Revenue is caught in a steady downward spiral, stores are old and unattractive to many … what’s to like?
Well, according to investors, a lot. First there were rumors of a Sears buyout in January. That caused shares to spike and scared out the short-sellers. Then SHLD returned to profitability in May with a strong earnings report. And of course investment guru Eddie Lampert, whose ESL Investments controls 65% of outstanding stock, has a strong track record leading companies like AutoZone (NYSE:AZO).
Yes, Sears has a five-year return that is nearly 65% in the red. But we are simply talking about the past six months with this list — and while Sears might never get back to where it once was, there is no doubt it has bounced back strongly from lows last year.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not hold a position in any of the aforementioned securities.