It hasn’t been a very impressive start to 2013, as the S&P 500 Index — albeit at all-time highs — finished up just shy of 1.3% for the first quarter.
That’s to be understood. Given the amazing 30% run for the benchmark last year on renewed optimism for both the U.S. economy and for Europe, a cooling-off was likely. Furthermore, the Federal Reserve has begun to “taper” its loose monetary policy, and that has had a modest impact on global growth.
There’s also cooler growth rates in China as the region looks to move beyond its old emerging market model of manufacturing and into a 21st-century service economy.
And let’s not forget the ugly situation in Ukraine that could disrupt energy supplies in Europe if harsh Russian sanctions are enacted.
Still, even with this choppy backdrop, there are plenty of places to profit if you know where to look.
Here are the 10 best stocks in the S&P 500 right now, all of which have tacked on an impressive 24% or more YTD in 2014:
Best Stocks in the S&P 500: #1, Forest Laboratories (FRX)
Q1 Return: 52%
Market Cap: $24.8 billion
Industry: Pharmaceuticals
The success story of Forest Laboratories (FRX) is simple enough: The company gapped up in February on news that Actavis (ACT) is trying to buy it out for $25 billion.
Actavis is the world’s second-largest generic drug company behind Teva Pharmaceuticals (TEVA), and the purchase of FRX would allow it to move into brand-name drugs — particularly the budding Alzheimer’s treatments that Forest is focused on right now.
The deal is a big win for shareholders, but also for billionaire investor and headline-grabber Carl Icahn. Icahn gained seats on the company’s board in 2012 and 2013 after becoming one of its largest shareholders, and has been pushing for a sale.
Looks like he got one, presuming regulators sign off on the deal.
Best Stocks in the S&P 500: #2, Nabors Industries (NBR)
Q1 Return: 46%
Market Cap: $7.3 billion
Industry: Oil & gas exploration
Nabors Industries (NBR) is one of the smaller components in the S&P 500, with a market capitalization that is 1/65th of tech giant Apple (AAPL). However, this drilling stock is one of the world’s largest on-land rig service stocks.
That has been a double-edged sword, as fracking has flooded the market with cheap natural gas and depressed energy prices. Why drill more wells when supply is already outstripping demand?
Well, in February, Nabors reported earnings that impressed across the board, hinting that a recovery for land-based drilling is in the cards — particularly for a new breed of so-called “walking” rigs that can be moved (albeit slowly) instead of built in place.
If you believe in the return of on-land drilling in the U.S., then these gains are only the beginning for Nabors and other stocks that have been battered since highs a few years ago.
Best Stocks in the S&P 500: #3, Harman International (HAR)
Q1 Return: 29%
Market Cap: $7.2 billion
Industry: Consumer electronics
Audio and electronics company Harman International (HAR) put on quite a show in 2013, soaring about 87% on the year thanks in part to restructuring and cost-cutting efforts. In May 2013, the company announced it would be moving a host of jobs overseas across the next five years to slash costs and boost margins.
As a result, FY2014 earnings are supposed to soar over 50% over 2013 numbers despite a modest 15% increase in revenue projected.
You’d think that after the big run last year that the optimism would be mostly baked in; however, in January the company raised its guidance again above even previously ambitious growth targets thanks to a strong auto market in Europe boosting demand for its audio systems.
Shares hit a six-year high on the news, and still haven’t stopped to look back yet.
Best Stocks in the S&P 500: #4, Tyson Foods (TSN)
Q1 Return: 29%
Market Cap: $14.7 billion
Industry: Packaged foods
Tyson Foods (TSN) isn’t exactly a growth stock, considering it is entrenched as one of the largest poultry producers in the world.
But given the 47% increase in profits when Tyson reported earnings in January, the chicken king has put up numbers enviable of even hot momentum stocks.
Why? Well, it’s not really due to any innovative product … it’s simple price inflation.
Meat prices across the board have been moving higher thanks to the cold winter and California drought driving feed costs higher. That’s bad for food processors, but wholesale producers of meat like Tyson have benefited from better margins on their meats as a result.
Given the continued uptrend, it appears that investors don’t expect meat prices to moderate anytime soon, either.
Best Stocks in the S&P 500: #5, Helmerich & Payne (HP)
Q1 Return: 28%
Market Cap: $11.6 billion
Industry: Oil & gas exploration
No, not that HP … Helmerich & Payne (HP) is a contract oil and gas driller that operates both on land and off shore.
What’s really of interest for investors is that Helmerich & Payne holds a 15% share of the U.S. land drilling market. The land-drilling business has been hard hit in recent years thanks to a glut of natural gas holding back energy prices and weak demand from China. Couple that harsh macro picture with the general competitiveness of this energy segment, where keeping rigs contracted can be a big challenge, and investors haven’t been too keen on companies like HP over the last few years.
But things have been looking up lately. Helmerich & Payne now has about 86% of its rigs placed worldwide and after strong earnings in January, it appears the drilling environment is improving.
Best Stocks in the S&P 500: #6, Newfield Exploration (NFX)
Q1 Return: 28%
Market Cap: $4.3 billion
Industry: Oil & gas exploration
Even the most knowledgeable of investors would be hard-pressed to identify Newfield Exploration (NFX) as an S&P 500 component. It’s only slightly larger than $4.3 billion in market cap, one of the smallest stocks on the index, and hardly a household name.
Still, the gains NFX stock has put up this year make it one of the highest fliers in the index.
As the name implies, Newfield is all about oilfield services and exploration. While the company has a small amount of offshore drilling in Asia, it is mainly focused on production in the Midwest, Rocky Mountains and Texas.
These regions are rich with reserves, and the hopes of an increasingly favorable onshore drilling environment in 2014 are lifting NFX as well as a handful of other on-land drillers that make this list.
Best Stocks in the S&P 500: #7, First Solar (FSLR)
Q1 Return: 26%
Market Cap: $6.8 billion
Industry: Alternative energy
First Solar (FSLR) is a highly volatile company that has broken its share of hearts over the last decade or so. But in the past 12 months, this alternative energy icon has put up about 150% returns.
Why? Well, after the recession gutted demand and an oversupply of solar technology depressed prices, the situation seems to have normalized in the last year or so. But thanks to reasonably firm energy prices and a slow ramp-up, some think solar stocks are only starting to get their rally caps on.
Now, we’ve seen this movie before with solar stocks soaring and then crashing back to earth. In fact, since 2008 we’ve seen a nasty 75% drop in FSLR from its peak — so just remember that the volatility cuts both ways before you believe there’s nowhere to go but up this time.
Best Stocks in the S&P 500: #8, Electronic Arts (EA)
Q1 Return: 24%
Market Cap: $8.8 billion
Industry: Video games
Electronic Arts (EA) is the iconic video game company behind such console-based hits like the Madden football series and the Battlefield action combat game.
This latter series has long been a cash cow, but EA stock took it on the chin this December on fears that the video game company had botched the latest incarnation through a host of technical bugs that created big headaches for players.
However, sentiment has rebounded on both the game and on Electronic Arts as a result. Shares have gained back everything they lost over the rocky holiday launch of Battlefield, and while EA has softened from its 52-week high in early March, it still remains up strongly since Jan. 1.
Best Stocks in the S&P 500: #9, Southwest (LUV)
Q1 Return: 24%
Market Cap: $16.6 billion
Industry: Airlines
Southwest (LUV) has a roaring 2013, gaining 85%. But the stock certainly hasn’t come back to earth yet with an impressive gain of 24% through the end of the first quarter of 2013.
So what gives? Well, part of it is the simple fact that Southwest remains one the best-run airlines out there. The company is a model of efficiency, but still manages to rank near the top of customer satisfaction surveys regularly.
But as much as it would be nice to credit Southwest’s best-in-industry operations, the sad reality is that all airline stocks have been flying high lately thanks to the recent merger between a bankrupt American Airlines and U.S. Airways (LCC). Consolidation means less competition, and the ability for carriers to charge more for tickets.
Bad for the flying public? Maybe … but good for airline stocks? Undoubtedly.
Best Stocks in the S&P 500: #10, Akamai (AKAM)
Q1 Return: 23%
Market Cap: $10.4 billion
Industry: IT and networking
Akamai (AKAM) is one of those behind-the-scenes Internet stocks that is focused on the infrastructure that powers big-name websites rather than creating a flashy storefront for consumers; Akamai provides content delivery, networking services and cloud-based solutions to other internet businesses that use the web to make money.
AKAM is a volatile stock that has been prone to big gaps up and down in recent years, but investors have seen positive movement so far in 2014, with the stock tacking on over 20% in one single trading day earlier this year.
The company posted great earnings in January, reinforcing the notion that this tech stock has a lot of room to run. As companies get increasingly data-hungry with the way they provide streaming radio, online video, rich content and other media to internet users, Akamai is in the right place to profit.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
