It has been a good year thus far for stocks, with a roughly 6% gain for the S&P 500 Index. That’s not just a good amount of profits for investors, but also a bit of a relief considering many feared the big-time gains of 2013 would be followed up by a rough year for stocks in 2014.
But don’t think that just because the market in general has cooled off a bit that there aren’t plenty of highfliers out there putting up massive gains in a hurry.
Thanks to dealmaking and turnaround stories, a number of S&P 500 stocks have delivered as much as 10 times the return of the broader stock market index … and they could go even higher in the months ahead. Here they are:
Best Stocks in the S&P 500 – #10, Southwest Airlines (LUV)
Southwest Airlines (LUV) had a roaring 2013, gaining 85% last calendar year. But the stock certainly hasn’t come back to earth yet and investors have enjoyed big-time gains through the first half of 2014.
So what gives? Well, part of it is the simple fact that Southwest remains one the best-run airlines out there. LUV 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 (AAL) and US Airways. Consolidation means less competition, and the ability for carriers to charge more for tickets.
Bad for the flying public? Maybe … but good for airline leader Southwest and LUV stock? Undoubtedly.
Best Stocks in the S&P 500 – #9, Pepco (POM)
Pepco Holdings (POM) is a regional utility serving the metro D.C. area.
You might be surprised to see a utility stock on this list of high fliers, considering the sleepy nature of the sector, but the reason for the pop in Pepco stock is simple: a buyout bid.
Big-time utility Exelon (EXC) recently bid $27.25 per share for POM stock — and while regulators still need to get all the I’s dotted and T’s crossed, there’s a good chance this is a done deal.
What does this mean for investors? Well, if you owned Pepco, then it’s time to cash out because the premium is already priced into shares. And if you don’t own Pepco stock, then there’s no reason to buy because this buyout is simply waiting for final approval.
Best Stocks in the S&P 500 – #8, SanDisk (SNDK)
SanDisk (SNDK) is perhaps best known for the flash drive and SD cards many consumers bought in droves a few years ago. However, the rise of mobile technology and the impressive growth and efficiency of data storage has made a lot of these devices almost obsolete.
The result had been pretty rough going for SanDisk, with the stock not really budging from late 2010 through the end of 2012. But earnings per share are finally back above pre-recession levels and the company is back in growth mode after retrenching.
Growth in fiscal 2015 might be harder to come by, so be careful of buying a top in SNDK stock now that the company seems to be valued on par with the rest of the S&P 500, with a forward P/E ratio of about 15.5.
Best Stocks in the S&P 500 – #7, Micron (MU)
Micron Technology (MU) makes semiconductors and flash memory for use in a host of high-tech products, from computers to cars to mobile devices.
Like SanDisk, the “post-PC age” had weighed on Micron for several years. However, the supply-and-demand balance seems to be working itself out after the company has restructured in recent years. Also, glimmers of a recovery have started to bolster electronics sales, and consolidation in the industry have placed a floor under pricing for semiconductor companies.
Recent upgrades have pushed the stock to new highs, but Wall Street remains bullish with targets of $50 from Needham & Co. and $43 from Merrill Lynch. Considering that MU stock is in the low $30s, that could signal further upside.
Just be careful if you’re considering buying. Micron’s growth remains challenged and the sentiment has already started to shift, so there is a risk that the snap-back has already happened and that MU stock is fairly valued.
Still, with a forward P/E in the single digits, there is a good chance Micron has more room to run.
Best Stocks in the S&P 500 – #6, Williams Cos. (WMB)
Williams Cos. (WMB) is another lesser-known oil & gas play that has soared in 2014 along with much of the energy sector. The company mainly is involved in energy infrastructure, including gas pipelines and processing facilities. WMB is also the parent of Williams Partners (WPZ), a high-yield MLP that helps support the roughly 3% dividend yield of this larger S&P 500 company.
Energy prices have been pretty firm in 2014, and that has helped many segments of the oil and gas business. But of particular interest for long-term investors is the fact that Williams Partners operates in the Midwest and in Canada … right smack in the path of the proposed Keystone XL pipeline.
There continues to be a big push to get the Keystone pipeline approved to transport oil across North America — and the recent loosening of export restrictions on oil could speed up the approval process, now that U.S. ports will need the infrastructure to support this energy export business.
A lot of the optimism is priced in, so investors who consider buying Williams Co. now must keep an eye on the long-term potential to support this valuation.
Best Stocks in the S&P 500 – #5, Allergan (AGN)
Allergan (AGN) is a healthcare company that sells prescription drugs, medical devices and even some over-the-counter products like Refresh eye drops. And recently, AGN has broken out.
The reason? Well, peer Valeant Pharmaceuticals (VRX) made a big bid for the stock in April and shares of AGN gapped up about 45% in a few days.
Now, the deal hasn’t been sealed … but the wheels continue to turn in favor of a merger between the two companies. Hedge fund Paulson & Co. just snapped up 6 million shares of Allergan in an effort to force a shareholder vote on the deal.
Like other acquisition targets on this list, the biggest pop has already been priced in and there’s only small upside before a deal takes place — and, of course, the risk of a big drop should it fall through. Chances are new money doesn’t have much to gain trading AGN stock in the months ahead.
Best Stocks in the S&P 500 – #4, Electronic Arts (EA)
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 series.
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, in Q1 sentiment rebounded on both the game and on Electronic Arts as a result. Shares quickly gained back everything they lost over the rocky holiday launch of Battlefield 4.
More recently, EA stock soared over 20% in May on a strong earnings report that blew away analyst expectations. The stock is trading at five-year highs now as a result, and is one of the best stocks in the S&P 500 year-to-date.
Best Stocks in the S&P 500 – #3, Forest Laboratories (FRX)
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.
Unfortunately, the stock has been mostly rangebound since the initial announcement of the deal earlier this year, so investors might be too late to share in any future success from FRX stock.
Best Stocks in the S&P 500 – #2, Nabors Industries (NBR)
Return Through Q2: 70%
Market Cap: $8.6 billion
Industry: Oil & Gas Exploration
Nabors Industries (NBR) 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. NBR stock gapped up strongly as a result, and the continued upwards march in energy prices in the intervening month have delivered even more profits to shareholders.
Nabors has gotten its core business back on track at just the right time for a jump in oil and gas prices. And if you believe in the future of domestic drilling in the U.S., then these gains are only the beginning for NBR.
Best Stocks in the S&P 500 – #1, Newfield Exploration (NFX)
Newfield Exploration (NFX) isn’t exactly the best known S&P 500 component. It’s barely bigger than a midcap, for starters, and hardly a household name among mainstream investors.
Still, the gains NFX stock has put up this year make it one of the highest fliers in the index — and means this stock is worth paying attention to.
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. The jump in energy prices, driven in part thanks to trouble in Russia and Iraq, has also led to a rally in this stock.
Unlike other stocks on this list, Newfield has steadily gained ground in 2014 instead of gapping up on one big piece of news. Decent numbers and a constant drumbeat of positive sentiment and buying has all added up to big-time returns so far this year.
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 firstname.lastname@example.org or follow him on Twitter at @JeffReevesIP.