The 10 Best S&P 500 Stocks of 2016’s First Half

The S&P may be in the red again, but these stocks are killing it so far

Bull market

Source: Sam Valadi via Flickr

The tale of the tape in 2016 is very misleading. The broader S&P 500 Index is pretty darn close to flat since Jan. 1, and most 401(k) statements probably don’t look all that much different than where they did several months ago.

But as the old saying goes, it is a market of stocks and not a stock market — which means while the S&P 500 has roughly held flat, there are a handful of stocks that have soared dramatically while others have crashed and burned.

Among the biggest winners in 2016 are materials and commodity companies, including energy infrastructure plays and mining firms. There is a tech stock here or there in this list of winners, to be sure, but by and large, the story of rebounding crude oil and gold prices is the driving force behind the majority of picks on this list.

So what are the best and brightest companies the S&P 500 had to offer in the first half of 2016?

Here is a look at the top 10:

Top 10 S&P 500 Stocks to Buy #10: Digital Realty Trust, Inc. (DLR)

Sector: Business Software & Services
Market Cap: $16 billion
YTD Performance: +40% vs. -1% for the S&P 500

Digital Realty Trust, Inc. (NYSE:DLR) is a fascinating investment that is a mixture of high-tech growth as well as income potential. Structured as a real estate investment trust, or REIT, the company owns technology-related real estate that mostly includes data centers and cloud computing platforms.

In other words, instead of renting out storage units or apartments, DLR rents out its server space.

This kind of flexible technology solution is very much in demand for firms who don’t want to pay big up-front costs to build and maintain their own data centers, as evidenced by the brisk 18% in revenue growth projected for Digital Realty this year.

It also provides reliable cash flow to support a 3.3% dividend. Investors have been more than happy to buy DLR stock in the first half of 2016 for the combination of growth and income.

Top 10 S&P 500 Stocks to Buy #9: Iron Mountain Inc (IRM)

Sector: Business Software & Services
Market Cap: $8 billion
YTD Performance: +40% vs. -1% for the S&P 500

Iron Mountain Inc (NYSE:IRM) is a record storage company that focuses on both physical documents as well as cloud-based solutions and data backup services.

Structured as a REIT, IRM stock has the mandate for big dividends since it must deliver 90% of taxable income back to shareholders — which adds up to a 5.1% yield at current pricing.

In a high-risk market environment, the reliable and growing revenue stream of Iron Mountain has made it very attractive to investors in 2016.

Top 10 S&P 500 Stocks to Buy #8: EQT Corporation (EQT)

Sector: Oil & Gas Production
Market Cap: $13 billion
YTD Performance: +45% vs. -1% for the S&P 500

EQT Corporation (NYSE:EQT) is a Pittsburgh-based energy company that focuses both on natural gas and crude oil production in the Marcellus Shale region as well as so-called “midstream” operations to transmit fossil fuels after extraction.

It is the first of many smaller energy companies that were brutalized by falling energy prices in late 2015 but have bounced back significantly in the first half of 2016.

Although EQT still struggles to turn a profit, the more volatile exploration arm of EQT is mitigated by the more reliable midstream operations and investors seem to think the worst is over for this energy stock.

Top 10 S&P 500 Stocks to Buy #7: Spectra Energy Corp. (SE)

Sector: Oil & Gas Pipelines
Market Cap: $24 billion
YTD Performance: +45% vs. -1% for the S&P 500

Spectra Energy Corp. (NYSE:SE) is a natural gas infrastructure company that operates as an intermediary between producers and the refineries and distributors that actually sell the fossil fuel.

This focus allows Spectra to remain relatively insulated from the volatility in energy prices, since it is simply a “toll taker” and doesn’t have to worry too much about the cost of production or the final selling price of natural gas to end users.

There’s not a lot of growth here, admittedly, but there is reliable cash flow that supports a juicy 4.7% dividend yield. And given the high-risk and low-interest-rate environment on Wall Street, those characteristics have made SE stock quite attractive this year.

Top 10 S&P 500 Stocks to Buy #6: Computer Sciences Corporation (CSC)

Sector: Business Software & Services
Market Cap: $6 billion
YTD Performance: +45% vs. -1% for the S&P 500

Computer Sciences Corporation (NYSE:CSC) is a technology consultancy that aids businesses in their IT infrastructure, cloud computing access and data center management.

The company underwent a massive reorganization in late 2015 that included a spinoff of its public-sector consulting for government agencies — a separate business that now trades under the name CSRA Inc (NYSE:CSRA) — and then shortly after merged with IT services from Hewlett Packard Enterprise Co (NYSE:HPE).

If it’s a bit hard to follow the bouncing ball here, simply know this: IT services are crucial to businesses, and CSC is one of the biggest players in the space and poised for future growth after recent moves. Investors seem to like what they see, too, based on the nice gains for CSC stock in 2016.

Top 10 S&P 500 Stocks to Buy #5: Freeport McMoRan Inc (FCX)

Sector: Metals & Mining
Market Cap: $13 billion
YTD Performance: +57% vs. -1% for the S&P 500

Freeport McMoRan Inc. (NYSE:FCX) is a natural resource company that has had a very rough road over the last several years. After diversifying out of copper and other materials into oil and natural gas, FCX stock was hit with the one-two punch of both crashing metals prices as well as crashing energy prices compared with a few years ago.

In fact, there were rumblings just a few months ago that Freeport may have to declare bankruptcy. But as commodity prices and energy prices have firmed up and as FCX has found buyers for some of its assets, the company is in a much better position and has been surging off its lows a few months ago.

That doesn’t mean the commodity stock is out of the woods … but it does add up to nice gains for the bold investors who bought the bottom in this volatile pick early in the year.

Top 10 S&P 500 Stocks to Buy #4: Range Resources Corp. (RRC)

Sector: Oil & Gas Production
Market Cap: $7 billion
YTD Performance: +80% vs. -1% for the S&P 500

Range Resources Corp. (NYSE:RRC) is a small oil and gas producer that hasn’t turned a profit in over a year, isn’t expected to be profitable for the rest of 2016, and should finish 2017 in the black, too, if predictions hold.

Despite these headwinds, investors seem to think that the pessimism over this driller has been overblown and have bid up shares of RRC dramatically as energy prices have rebounded.

Time will tell whether this run can continue, but investors should use caution with this stock since the profits in their investment portfolios may not be sustainable given the lack of profitability on Range Resources’ balance sheet.

Top 10 S&P 500 Stocks to Buy #3: Oneok, Inc. (OKE)

Sector: Oil & Gas Pipelines
Market Cap: $9 billion
YTD Performance: +86% vs. -1% for the S&P 500

Oneok, Inc. (NYSE:OKE) is the general partner of Oneok Partners LP (NYSE:OKS), a master limited partnership (MLP) that processes, stores and transports natural gas.

As with some of the other income plays on this list, the reliable cash flow provided by its energy infrastructure business has made OKE stock a very attractive investment in these troubled times.

And, of course, as the general partner of Oneok Partners (it holds a roughly 41% stake), OKE benefits from the MLP’s big mandate for distributions; Oneok currently yields about 5.5%. There’s hope of future increases to those distributions, too, considering that dividends have doubled since early 2012 and both revenues and earnings are headed higher, based on current estimates.

EDITOR’S NOTE: This has been corrected to reflect the fact that Oneok, Inc., is not a master limited partnership, but a general partner of Oneok Partners LP.

Top 10 S&P 500 Stocks to Buy #2: Southwestern Energy Company (SWN)

Sector: Oil & Gas Production
Market Cap: $5 billion
YTD Performance: +98% vs. -1% for the S&P 500

Southwestern Energy Company (NYSE:SWN) has much the same tale as Range Resources, only that it is actually projected to return to profitability sooner — perhaps as early as Q4 of 2016 — and investors have been willing to give it the benefit of the doubt.

The slightly rosier outlook is mainly because SWN is focused solely on natural gas exploration and production, and that fossil fuel hasn’t been quite as volatile as oil over the last year or so.

Still, investors should keep in mind the current challenges to the business and the big run-up in shares before they bank on SWN’s outperformance continuing in the second half.

Top 10 S&P 500 Stocks to Buy #1: Newmont Mining Corp (NEM)

Sector: Metals & Mining
Market Cap: $20 billion
YTD Performance: +106% vs. -1% for the S&P 500

Newmont Mining Corp (NYSE:NEM) is a copper and gold miner that has benefited from the rebound in commodity prices this year, particularly in the surge we’ve seen for gold prices.

Investors who bought into NEM stock in late 2015 happened to be buying at a time of tremendous pessimism, what with the hope of higher interest rates and lower commodity prices in 2015 — both of which would weigh on gold significantly.

However, the opposite has happened and the overly bearish sentiment in companies like Newmont has allowed gold miners to put up some of the best gains among all stocks in 2016.

Whether it lasts will be anybody’s guess … but given the current market uncertainty, it’s pretty safe to think that gold prices and gold miners will remain firm for at least a few more months.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a position in ZOES but no other stocks mentioned here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/sp-500-index-stocks-buy/.

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