We’re closing out what has been one of the worst quarters for investors in years.
It’s wasn’t just the 10% correction (and beard shaving) we endured in August, and it wasn’t just the overall 8% decline or so across the last three months.
It’s the ugly sentiment and drumbeat of negative predictions that have started to become commonplace, including a recent video from investing icon Carl Icahn predicting “danger ahead” for stocks and junk bonds and that a big pullback is in the works.
But as the old adage goes, it’s a market of stocks and not just a stock market. As such, savvy investors can find pockets of opportunity either through impressive growth metrics in a rough market or through big buyout premiums that result in significant overnight gains.
So which stocks have been cashing in lately even as the broader market has stumbled? Here are the top 10 best stocks out of the S&P 500.
Best S&P 500 Stocks Through Q3: #10, Chipotle (CMG)
Q3 Performance: +18% vs. -9% for the S&P 500
The risks cited by the magazine include increasing ingredient costs and concerns over valuation now that growth has slowed, but let’s face it: There are few growth options at all right now.
The fact that CMG is expected to grow both profits and revenue by about 19% next year over FY2015 numbers is undeniably a good thing, and investors are clearly hoping the tailwind of continued growth will make Chipotle a safer bet than many alternatives in this down market.
Best S&P 500 Stocks Through Q3: #9, Cameron International (CAM)
Q3 Performance: +19%
Sector: Oil services
Cameron International (CAM) has been struggling all year, as the industrial company’s main clients in the oil and gas industry weren’t that eager to buy its flow and drilling equipment in a tough oil market.
However, Schlumberger (SLB) saw big potential for synergy, being that it’s the world’s largest oil-field service company, and made a move in August to snap up the smaller $12.7 billion company in cash and stock.
CAM has actually been drifting a bit lower, because of the stock-based portion of this deal that continues to look less valuable by the day, so if you own CAM you should sell ASAP and lock in the profits. Unfortunately for new money, the ship has sailed on Cameron.
Best S&P 500 Stocks Through Q3: #8, Motorola Solutions (MSI)
Q3 Performance: +19%
Sector: Communications equipment
Motorola Solutions (MSI) is the remnant of the old Motorola business after the spinoff of its hardware arm in 2011. Shares got pretty stagnant around the end of 2013, and then in mid-2015 we saw a huge decline as MSI stock dipped from a high around $70 to a low of about $56 in July.
However, August and September were breakout months for Motorola Solutions after Silver Lake Partners announced it was plowing $1 billion into the company. And keep in mind that, while MSI isn’t quite the sexiest tech play out there, it is soundly profitable with a sustainable 2% dividend yield and a very reasonable forward P/E of only about 17 even after this run-up.
It’s hard to say whether Motorola Solutions can repeat this performance going forward, but based on the confidence of Silver Lake, investors who own can hold with confidence.
Best S&P 500 Stocks Through Q3: #7, H&R Block (HRB)
Q3 Performance: +20%
Sector: Financial services
Long-term, tax preparer H&R Block (HRB) has been pretty range-bound since 2013. However, after a selloff to start the year, the financial services stock bounced back big time in Q3.
Part of the catalyst was a narrower-than-expected loss reported about a month ago. HRB is, obviously, quite cyclical as it does the majority of its business around tax time, but improvements during this slow time of year are very encouraging for how lean the company is.
Furthermore, better-than-expected revenue may hint at strong performance going forward as more folks with more income find themselves leaning on H&R Block to prepare their returns in the months ahead.
BofI Federal Bank just acquired H&R Block Bank, a subsidiary with a focus on traditional financial services like lines of credit and direct deposit, freeing up HRB from the messy business of retail banking and allowing it to focus on its legacy tax prep business. Investors have been encouraged by all this and bid up HRB big-time last quarter as a result.
Best S&P 500 Stocks Through Q3: #6, Under Armour (UA)
Q3 Performance: +21%
Sector: Consumer discretionary
Under Armour (UA) has a consistent track record of strong growth, which has helped the apparel giant swim upstream in an otherwise difficult market.
In July, Under Armour’s earnings included a 29% jump in revenue and a boost in full-year guidance to a 25% annual growth rate for sales. Dig deeper into the numbers and you’ll see an impressive history of success, with 21 straight quarters of more than 20% net revenue growth — a simply stunning track record.
Admittedly, a forward price-to-earnings ratio of about 70 is concerning for some. But there simply aren’t a lot of good growth options, and Under Armour indeed deserves some kind of premium for its continued success.
Best S&P 500 Stocks Through Q3: #5, Activision Blizzard (ATVI)
Q3 Performance: +25%
Activision Blizzard (ATVI) is the video game giant behind franchises including Call of Duty, Guitar Hero and World of Warcraft.
Each of these series is a monster, and they all have released or are set to release a new incarnation shortly. Heck, there’s even a Warcraft movie in the works with a 2016 release date.
Revenue projections for 2016 include 17% growth over this year’s numbers, and earnings should jump 12%. Investors are very optimistic that those estimates fail reflect the robust growth potential of ATVI.
Best S&P 500 Stocks Through Q3: #4, Chubb (CB)
Q3 Performance: +28%
The goal was to go upmarket and access policyholders with more expensive stuff and thus more expensive premiums, theoretically boosting ACE margins after a period of tough competition has weighed on profitability.
Regardless of how the move plays out for ACE, Chubb shareholders were delivered a nice 25% gain in short order on the buyout news.
Best S&P 500 Stocks Through Q3: #3, AGL Resources (GAS)
Q3 Performance: +29%
Sector: Energy services
AGL Resources (GAS) is a natural gas stock focused on mostly midstream operations, and was recently acquired by utility giant Southern Co. (SO) in a bid to diversify into the fast-growing natural gas market.
A roughly $8 billion deal announced at the end of August was great news for AGL Resources, but hasn’t seemed to do much to help SO stock.
Best S&P 500 Stocks Through Q3: #2, Cablevision (CVC)
Q3 Performance: +34%
Cablevision has long been the target of buyout rumors given the challenging environment for cable companies, and this deal will make Altice the fourth-largest provider and hopefully give it the scale to stay relevant going forward.
Best S&P 500 Stocks Through Q3: #1, TECO Energy (TE)
Q3 Performance: +48%
TECO Energy, Inc. (TE) is another acquisition story with great gains for those who were in it, but little hope for more profits for new shareholders going forward.
Emera Inc. announced it was acquiring TE stock in September for about $10.4 billion, causing an instant pop in share prices for the Florida utility. TECO is set to become a wholly owned subsidiary of Emera, so don’t expect any additional upside from this stock, as it should be removed from trading shortly after this deal closes.
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