There have been a lot of fireworks in 2015, as the market has gyrated up and down but only tacked on about 1% through the end of the first quarter.
But as the saying old goes, it is a “market of stocks” and while the major indices are barely better than flat, that doesn’t mean there aren’t a number of companies that have done quite well.
We’re not talking OTC penny stocks that have jumped for no reason either. Some of the biggest names in the S&P 500 with market caps in the tens of billions have tacked on as much as 40% in the first three months of the year.
And for a number of these stocks, the outlook is still bright even after their run-up.
So what are the best stocks in the S&P 500 through Q1? Here’s a list:
Best S&P 500 Stocks: #10 — Avago Technologies Ltd (AVGO)
Market Cap: $33.6 billion
Sector: Semiconductors
Q1 Performance: +27% vs. +1% for the S&P 500
Not quite as interesting as the sexy smartphone app companies or social media giants out there in the tech sector, Avago Technologies Limited (NASDAQ:AVGO) is a global semiconductor manufacturer that focuses on wireless communications, fiber optic and LED technologies, among other things.
But while the low profile of Avago is a bit unimpressive, the performance of shares is indeed noteworthy; on top of a strong Q1 performance, the stock has also doubled in the past 12 months and tacked on about 275% gains since March 2013.
That in part thanks to its connection to megacap tech stock Apple Inc. (NASDAQ:AAPL) as a supplier for its highly successful iPhone. A strong launch of the iPhone 6 last fall has meant a strong run for Avago, too.
Of course, gains have been tougher to come by since late February after the stock gapped up on a nice earnings beat driven by iPhone success as well as the benefit of some recent acquisitions. Investors were impressed, but seem skeptical about whether that success is sustainable after the initial iPhone push and the benefit of these buyouts is now baked in.
Of course, with a forward price-to-earnings ratio of about 14, Avago is hardly in bubble territory — and as the long-term track record of this semiconductor stock shows, AVGO has found a way to find continued success over time instead of suffering the volatility of other smaller tech stocks over the last few years.
Best S&P 500 Stocks: #9 — Martin Marietta Materials, Inc. (MLM)
Market Cap: $9.6 billion
Sector: Materials
Q1 Performance: +28%
Martin Marietta Materials, Inc. (NYSE:MLM) is one of those boring stocks that most investors forget about until someone reminds them it exists. The company is one of the largest producers of crushed stone, gravel and concrete in the U.S.
But investors who were paying attention to this company in 2014 should know that MLM snapped up a major competitor in Texas Industries for $3 billion last year. Though not a high-profile deal, the move strengthened Martin’s grip on the market — and just in time for what looks to be another great year for construction and demand in building aggregates and concrete.
The bulls say that Martin Marietta is at the beginning of a multiyear expansion in sales and earnings as the economy picks up steam and its dominance pays off. Bears insist a forward P/E of 20 is too rich for what is essentially a company that sells rocks, and the paltry 1.1% dividend yield isn’t enough of a sweetener considering the alternatives.
I’m pretty neutral, all things considered, and reluctant to buy after the stock gapped up an amazing 20% in just several trading days at the beginning of February. Outperformance has been very much front-loaded in this stock.
But if push comes to shove, consider me a buyer for the long-term. The scale of MLM and secular recovery for construction aggregates amid a healing U.S. economy are hard to ignore.
Best S&P 500 Stocks: #8 — Vulcan Materials Company (VMC)
Market Cap: $11.3 billion
Sector: Materials
Q1 Performance: +29%
The story for Vulcan Materials Company (NYSE:VMC) should sound awfully familiar after the Martin Marietta entry. This company also is involved in construction aggregates, asphalt and concrete. And this company also is benefiting from an uptrend on the sector thanks to a mending U.S. economy and construction industry.
In fact, Vulcan actually acquired some assets from Martin Marietta as part of the antitrust process regarding the latter company’s purchase of Texas Industries last year, so both firms actually benefited from this buyout.
Strong earnings in Q4 reinforced the trend of improving financials for this materials stock in February and have helped add to 2015’s momentum.
The U.S. aggregates industry is now pretty much a duopoly between Vulcan and Martin Marietta, and investors seem hip to the fact that there’s nowhere else for business to flow in a recovering market than these two construction-related stocks.
That should continue in 2015, even though I think most of the outperformance has already been had. Still, long-term investors can buy with confidence thanks to the wide moat created by last year’s consolidation in the industry.
Best S&P 500 Stocks: #7 — Urban Outfitters, Inc. (URBN)
Market Cap: $6 billion
Sector: Specialty retail
Q1 Performance: +31%
Urban Outfitters, Inc. (NASDAQ:URBN) had its share of pain in recent years, falling about 40% from a high of roughly $45 in mid-2013 to a low of about $28 at the end of 2014. But a few months ago, things started to turn around and investors have been cashing in on the snap-back in this troubled retailer.
In fact, URBN stock is now at an all-time high thanks in part to strong earnings that showed a beat on the top line and more than $1 billion in quarterly sales for the first time ever.
Also encouraging to investors is the opening of about 38 stores under its various brands in the last year, moving it back into expansion mode, as well as a significant stock repurchase plan to help drive shareholder value.
There is still a long way to go, of course. Bears warn that investors shouldn’t get too excited about the company considering its recent same-store sales growth was the first expansion after five consecutive quarters of contraction. And, of course, the apparel industry is notoriously fickle as consumer tastes rapidly change.
But with a comparatively fair forward P/E of about 19, investors shouldn’t fear of paying a ridiculous premium right now for a company that has admittedly seen significant signs of life and could be turning around.
Best S&P 500 Stocks: #6 — Mallinckrodt PLC (MNK)
Market Cap: $15 billion
Sector: Pharmaceuticals
Q1 Performance: +31%
No, this stock hasn’t escaped from a list of the best European investments to buy now. Though headquartered in Ireland, Mallinckrodt PLC (NYSE:MNK) acquired both Questcor Pharmaceuticals and Cadence Pharmaceuticals to join the S&P 500.
Besides, there’s precedent for foreign stocks sticking around on S&P’s list of largest U.S. companies — including components Tyco International PLC (NYSE:TYC) and Transocean Ltd (NYSE:RIG) which are both located in Switzerland but have been a member of the S&P 500 for some time.
At any rate, the recent acquisitions have served Mallinckrodt well, with the stock up 100% in the last 12 months. And given the tailwind broadly for healthcare stocks and pharma companies, it’s no surprise to see continued growth in MNK lately.
Given the consolidation in healthcare, MNK may itself be a buyout target going forward with its comparatively low market cap of just $15 billion. Given that Mallinckrodt produces both branded and generic drugs, it could be an attractive addition to all manner of drugmakers.
And with a forward price-to-earnings ratio of about 14 right now, there’s also hopes that investors could buy in at a reasonable price even after this strong Q1 run and see continued appreciation even without a buyout offer from Big Pharma.
Best S&P 500 Stocks: #5 — First Solar, Inc. (FSLR)
Market Cap: $6.1 billion
Sector: Alternative energy
Q1 Performance: +34%
First Solar, Inc. (NASDAQ:FSLR) may be a bit of a surprise to some investors, given the troubles for energy stocks this year. After all, if crude is so cheap that Big Oil is getting hammered, why in the world would solar energy that is comparatively more expensive to produce be in favor right now?
Well, for starters there’s the idea that any battered stock has to eventually bounce back — and after FSLR stock lost about 40% in the last nine months of 2014, this stock was due to get up off the mat and start fighting again.
There’s also the prospect of a so-called “yieldco” to be created as a joint venture with SunPower Corp. (NASDAQ:SPWR) to provide predictable cash flow over the long term and ensure a level of stability going forward for this historically volatile company.
Last but not least, throw in the acquisition of a Chilean solar company with the rather obvious name Solar Chile as a path to emerging market growth, and it makes more sense why FSLR is rising even in an uncertain energy environment.
So should investors buy here? Maybe, given the potential floor created by a yieldco effort… but don’t expect volatility to evaporate anytime soon. Consider this an aggressive bet, and one that offers big risks as well as big potential rewards.
Best S&P 500 Stocks: #4 — Boston Scientific Corporation (BSX)
Market Cap: $24 billion
Sector: Healthcare
Q1 Performance: +34%
Boston Scientific Corporation (NYSE:BSX) has been red hot since 2012, with the stock up about 200% in the last three years, and that outperformance continued in Q1 2015. The medical device company continues to benefit from its scale, strong products and continued growth in the entire sector.
I have been bullish on healthcare stocks for some time based on the continued tailwind created by both aging baby boomers in the U.S. creating strong demand and the organic growth in emerging markets as wealthier middle-class citizens gain access to modern healthcare services. Boston Scientific is at the center of this trend, with devices like endoscopes and heart monitors that are an integral part of effective care but not subject to the same uncertainty as FDA approvals or patent expirations.
It’s sometimes dangerous to chase a highflier, but BSX stock is pretty fairly valued with a forward P/E ratio of about 17.5 right now and a strong track record of success. Given the power of healthcare stocks as long-term investment, I would be confident buying Boston Scientific stock even after this run and hoping for continued outperformance for the rest of the year.
Best S&P 500 Stocks: #3 — Skyworks Solutions Inc (SWKS)
Market Cap: $19 billion
Sector: Semiconductors
Q1 Performance: +35%
Skyworks Solutions Inc (NASDAQ:SWKS) isn’t just one of the best short-term performers in the S&P 500, but also a tech stock with good long-term momentum. On top of the roughly 38% gain year-to-date in 2014, SWKS has tacked on about 170% growth in its share price in the last 12 months and 355% gains in the last two years.
There’s good reason for this, too. Consider that Skywords posted 59% revenue growth in Q1 thanks in part to a hardware partnership with Cisco Systems, Inc. (NASDAQ:CSCO) as well as strong overall demand for its semiconductors across the entirety of the technology sector.
Analysts remain bullish on the semiconductor company, with Northland Capital, Topeka Capital Markets and Canaccord Genuity all reiterating strong ratings in March and increasing their price targets to reflect the recent run-up.
The million-dollar question is whether Skyworks can keep up this strong track record of outperformance. But given the long-term success of this semiconductor stock, investors shouldn’t be too worried even if there is a brief pullback on profit taking after a strong first quarter.
Best S&P 500 Stocks: #2 — Kraft Foods Group Inc (KRFT)
Market Cap: $53.2 billion
Sector: Consumer staples
Q1 Performance: +39%
Kraft Foods Group Inc (NASDAQ:KRFT) exploded last week on reports of a merger with fellow consumer icon Heinz. While packaged-food companies have been quite sleepy and mostly overlooked in recent years, the marriage of these two giants was big news — particularly given the stake that investment icon Warren Buffett has in Heinz.
After a roughly 40% pop in one day, KRFT has drifted slightly higher, then lower. But regardless of what happens from here, investors shouldn’t fool themselves into thinking that there will be a counter-offer to the $40 billion proposal by Buffett and 3G Capital to purchase the foods giant. The premium is going to be very hard to match, and the idea of efficiencies of scale can really only be achieved by merging an equal like Heinz with Kraft.
In other words, if you owned KRFT for the long-term dividend potential, you got a great surprise with this buyout announcement in March. But if you don’t have a direct stake in Kraft, don’t expect much from this stock going forward now that this initial pop is now baked in.
Best S&P 500 Stocks: #1 — Hospira, Inc. (HSP)
Market Cap: $15.1 billion
Sector: Pharmaceuticals
Q1 Performance: +43%
While the performance of Hospira, Inc. (NYSE:HSP) is mighty impressive since January 1, like Kraft the reasons for that performance aren’t quite as interesting; pharma giant Pfizer Inc. (NYSE:PFE) offered up a $17 billion buyout plan in February for the stock, and after an initial pop, the fireworks are now over with.
Pfizer was particularly interested in the injectable drug company’s so-called “biosimilars,” which are treatments that perform comparably to existing medications despite being a different drug altogether. As a company facing the expiration of some key patents, including top sellers Celebrex and Lipitor that just lost exclusivity, PFE badly needs a new (pardon the pun) injection of options.
Sadly for investors, if you don’t already have a stake in HSP stock you’ve missed out on the potential of this deal. Shares are bouncing around by a few pennies in the $88 range and will continue to do so until the deal closes, but it’s highly unlikely there’s much upside left in the wake of this big-ticket buyout announcement.
