Top 10 Best Stocks to Buy in the S&P 500 Through Q3

The S&P 500 is at record highs, and it has these stocks to thank

By John Kilhefner, InvestorPlace Deputy Managing Editor

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As much as I’d like to keep my thoughts free of President Donald Trump, you just can’t talk about Wall Street in 2017 without him. It’s the year that the S&P 500 Index rode the Trump trade to record high after record high. The S&P is up 18% since Election Day after all, and 12% since Jan. 1, spurred by promises of tax overhaul and the lessening of regulatory red tape.

Top 10 Best Stocks to Buy in the S&P 500 Through Q3Not all of the best stocks to buy right now have the Donald to thank, though. Some have gotten by on strong fundamentals. Others took investors by surprise. But now that the GOP has its tax plan ducks in a row, strategists are raising the ceiling for the S&P 500 in 2017.

Some experts believe the index will rocket past the previous target of 2,540 to reach 2,640. Morgan Stanley, too, is calling for 2,700 as investors trade with gusto on the promises of the first major tax overhaul in a generation.

Many of the following stocks are pushing against their record highs, hailing from various industries. While I wouldn’t take these stocks as gospel as far as what’s to come in the fourth quarter, I seriously doubt these companies will cause you to pull your hair out anytime soon.

Best Stocks to Buy Right Now: Boeing Co (BA)

YTD Gain: 62.7%
Industry: Aircraft manufacturing

Boeing Co’s (NYSE:BA) run-up in 2017 is nothing short of spectacular. Gaining 63% as of this writing, BA stock is now within spitting distance of its 12-month price target of $269. There’s a reason 13 of the 23 analysts covering Boeing rate it a “buy” or higher, with absolutely no “sell” ratings — growth.

BA is expected to grow earnings 15% in the fourth quarter and just shy of 40% for the full year. That growth slows down to 8% in 2018, but we’re still looking at a five-year annualized rate of 18.7%. That’s not too out of line with its forward price-earnings ratio of 23.6, mind you. Much of that growth comes courtesy the “Trump trade.”

The president’s stance to increase the defense budget and his saber-rattling toward North Korea bode well for a defense contractor such as BA. Sure enough, Trump’s meeting with Malaysian Prime Minister Najib Raza helped bring about a $3 billion deal for Malaysia Airlines to buy Boeing’s planes, consisting of approximately eight 737 MAX 10 planes and eight 787 Dreamliners.

Business is also good on the commercial side for Boeing. Qatar Airways recently announced that it is buying $2.16 billion worth of Boeing airliners. That order brings Boeing’s commercial airplane backlog to $424 billion as of the end of the second quarter, up from $417 billion at the end of Q1 — 5,665 planes as of August’s end.

We’ll know more when BA reports Q3 earnings on Oct. 25, but I don’t expect the BA to be any less of a stock to buy at year-end.

Best Stocks to Buy Right Now: Nvidia (NVDA)


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Year-to-Date Gain: 67.4%
Industry: Semiconductors

Nvidia Corporation (NASDAQ:NVDA) was originally further up this list, but it took a dive over the past few weeks. Dips like that are to be expected, as NVDA stock is far and away above its 12-month price target of $161. Still, only four of its 39 analysts recommend unloading shares. Twenty-three suggest buying more. While growth is expected to slow over the next quarter, it’s clocking a breakneck pace of 41.2% for the year. That makes its forward price-earnings ratio of 43 somewhat palatable.

But when investors get a whiff of fear, insane runs and frothy valuations are gunpowder. That’s what happened when the rumor mill churned out word of an autonomous-vehicle partnership between Tesla Inc (NASDAQ:TSLA) and Advanced Micro Devices, Inc. (NASDAQ:AMD). Investors were worried that AMD is getting what should’ve been Nvidia’s, though the rumor was denied by an AMD partner. Trip Chowdhry of Global Equities Research, however, doesn’t believe it in the first place:

“AMD is not a Player. AMD is DoD (Dead-on-Departure) in DML (Deep Machine Learning) Workloads. Google threw AMD out of its GPU Training Cluster, as AMD had extremely poor performance on GOOGL TensorFlow framework.”

If that’s true, then NVDA stock is a bargain after its latest dip. After all, Nvidia has a lot going for it, even aside from autonomous vehicles. Some investors buy NVDA stock for the booming video game market, as its graphical processor units (GPUs) are integral in the ever-tightening console cycle. Others buy stock in Nvidia because of bitcoin — cryptocurrency mining needs GPUs to process all of that data crunching, and Nvidia makes the high-end units that appeal to hardcore bitcoin miners.

Whatever you do, don’t sell NVDA stock because of a rumor. Even if it were true, Nvidia is still the front-runner in the “brains” of the self-driving space, with recent investments in JingChi, a Chinese autonomous car startup using Nvidia GPUs and Nvidia Drive PX 2 in the development of its cars. JingChi will have 50 self-driving cars on the roads of China by the end of 2017. By 2018, it could be China’s Uber.

Best Stocks to Buy Right Now: Centene Corp (CNC)

Centene Corp (NYSE:CNC)
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YTD Gain: 69.8%
Industry: Healthcare

Centene Corp (NYSE:CNC) is a healthcare company with its fingers in two pies — managed care and specialty services. CNC stock’s 2017 ascent has put it within single digits of its 12-month price target. Yet, of the 16 analysts covering CNC, 11 rate it a “buy.”

I’m a little hesitant, considering that Centene is going from near-60% earnings growth to 13% growth over the next five years, and for that, you’re paying 17 times forward earnings. Yet, what Centene can’t find in organic growth, it can find in good ol’ fashioned M&A.

Just this week, CNC stock rose after it announced that it would acquire Fidelis for $3.75 billion. Fidelis gives Centene a foothold in New York, which is the second-largest managed care state with 1.6 million members, and in California, Texas and Florida.

The deal closes in the first quarter of 2018, and it’s expected to boost Centene’s per-share earnings, so don’t expect CNC stock to sit out future “best stocks to buy” lists.

Best Stocks to Buy Right Now: Wynn Resorts (WYNN)

YTD: 72.4%
Industry: Casinos 

Wynn Resorts, Limited (NASDAQ:WYNN) is a momentum stock through and through. It has soared so high this year that it has actually surpassed the 12-month target set by analysts. For that reason, among others, most analysts recommend holding WYNN stock for now. But let’s look at why WYNN has been so mo-mo in 2017.

First, Wynn Resorts is in the highly volatile, highly lucrative gaming industry. It saw a government crackdown that hurt its revenues in China’s one place where gambling is legal — Macau — but it turned it around late last year and hasn’t looked back since. Reconfiguring its gaming floor helped Wynn increase foot traffic on its casino floors, leading Deutsche Bank to upgrade WYNN to “buy” from “hold.”

WYNN stock is expected to grow earnings by 70% in the third quarter, 140% in the fourth and 44.5% for the full year. That’s not bad for a company costing 24 times future earnings.

Best Stocks to Buy Right Now: Lam Research Corporation (LRCX)

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YTD Gain: 74.6%
Industry: Semiconductors

Lam Research Corporation (NASDAQ:LRCX) is a semiconductor company. No wonder it’s on this list. The semiconductor industry has seen tremendous growth, with much more to come as self-driving cars and the Internet of Things really begin to take hold in society. LRCX, in particular, supplies wafer fabrication materials and services for use with smartphones and tablets to storage and networking devices.

LRCX stock is a hit with analysts, 18 of whom recommend buying and only three who recommend holding. And while LRCX stock is only 6% removed from its 12-month price target, it’s on pace to grow earnings in the double-digits (20%) for the long haul. All at a forward price-earnings ratio of just 13.5.

Indeed, the future does look bright for LRCX stock holders. Emerging trends such as artificial intelligence, the Internet of Things and cloud computing continue to grow, as does demand for NAND and DRAM memory chips. That’s Lam’s bread and butter. But demand is only part of the picture; you’ve got to keep an eye on pricing power as well. And for now, the pricing environment for memory chips doesn’t appear as volatile as it has in the past.

Best Stocks to Buy Right Now: Micron (MU)

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YTD: 76.2%
Industry: Semiconductors

Micron Technology, Inc. (NASDAQ:MU) has tacked on over 70% in the markets and it has still got room to run! Micron shares, according to analyst expectations, have roughly 30% more to gain before hitting their 12-month target of $44.70. And it could double before hitting the high end of $75 per share. Indeed, not a single analyst is soft on MU shares, with 29 of the 31 analysts covering Micron rating it a “buy” or better. The lonely two are holding.

Why would you sell a stock with a business that’s growing at a 52.4% clip for the year? Not to mention, MU stock trades at just 5.9 times future earnings. That’s what happens when you have a business that was barely profitable a year ago and suddenly inject earnings into it. That’s not financial engineering — it’s the product of the memory-chip craze.

Micron has its fingers in all aspects of the memory biz, from NAND to DRAM to DIMM. If there’s been any hesitation to join the party, it’s because of the memory-supply glut and pricing war that cratered MU stock and others back in 2014. After all, it is a highly cyclical industry where price stability could be seen as the calm before the storm.

The last glut was caused in no small part by Samsung Electronics, which flooded the market with low-cost chips that weighed heavily on Micron’s sales. We are, however, in an unusually stable environment that actually could hold longer than many people think as the trend turns from solid-state drives to all-flash.

Micron’s fourth-quarter report tells the tale: Average selling prices for DRAM and NAND are up 8% and 5%, respectively, while sales volume increased 5% and 3%, respectively. What’s more, MU’s growth was robust all-around — its compute and networking business unit (CNBU) more than doubled year-over-year; storage business unite (SBU) benefitted from a near-doubling of its market share in global SSD; while its mobile business unit (MBU) increased sales by 76% YoY and its embedded business unit (EBU) grew 61% YoY.

Best Stocks to Buy Right Now: Activision (ATVI)

YTD: 78.4%
Industry: Gaming

Activision Blizzard, Inc. (NASDAQ:ATVI) may scare some investors, as it’s in a highly cyclical niche of video games that is tucked away somewhere within the consumer space, and it hasn’t fired off growth numbers that look as sexy on paper.

No one will deny that the video game space has absolutely blown up over the past year, and double-digit growth for the next five years isn’t anything I’d sneeze at. Neither would the 21 analysts who recommend buying ATVI. Only one out of the 26 analysts covering Activision recommend selling it (must be an Electronic Arts (NASDAQ:EA) fan).

While Activision’s monthly active users decreased to 47 million in its second quarter, Blizzard saw its largest quarterly community ever — 46 million MAUs, up 38% YoY. That’s due largely to Overwatch, an online shooter that’s both a critical and sales smash since its release, and Hearthstone, a digital card game.

But expect Activision to prop up its own numbers soon enough, as the Bobby Kotick & Co just released Destiny 2, a massively multiplayer online role-playing first-person shooter, on Sept. 6. It’s already had the biggest launch of 2017 so far in the PlayStation Store, and it has topped the U.K. charts for weeks.

Best Stocks to Buy Right Now: Align Technology (ALGN)

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YTD: 93.6%
Industry: Medical Equipment

When faced with a number of choices for pun-making, the correct answer is to play it straight. Align Technology, Inc. (NASDAQ:ALGN) is, quite frankly, a superstar. It’s growing at a double-digit clip for the near- and long-term, as sales more than doubled over the past four years. Cash, too, has nearly doubled — from $335 million in 2012 to $602 million right now. That’s not exactly Apple Inc. (NASDAQ:AAPL) cash, but it’s more than enough to pay off its debts and have enough left over to set my family up for life.

Align is more than just some company chucking plastic, though — it’s selling a lifestyle. You may know it for its Invisalign brand, but it also has the iTero Intraoral scanning system and OrthoCad digital service for use in dentists offices. It also licenses its technology to other players in the space, such as SmileDirectClub, which takes something as boring as getting your teeth straightened and makes it sexy.

Right now, ALGN claims to reach a million teenagers who have begun treatment with Invisalign. Really, it’s no wonder Invisalign case shipments are up 31% YoY, and 11.5% sequentially.

If you think that’s impressive, Align’s scanner & services revenues are up 37% YoY! Its latest tech innovation should continue to drive growth in this segment, as Align announced a software upgrade in Q2 that will give its intraoral scanners the ability to compare patient scans using TimeLapse technology.

As teledentistry becomes more common, you can expect ALGN stock to reap the rewards.

Best Stocks to Buy Right Now: NRG Energy (NRG)

YTD: 106%
Industry: Energy

NRG Energy Inc (NYSE:NRG) may seem like an unlikely candidate for best S&P stock of the year, as the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) is off 9%-plus this year. Instead, NRG has seen its five-year growth rate turnaround, from a loss of 11.5% to a gain of 115.4% for the next half-a-decade.

So what if earnings contract 27% this year? It’s growing at a 288% clip in 2018! All that growth and you’re only paying 19 times forward earnings. You could do a lot worse.

That’s the mentality activist investors Paul Singer and John Wilder had when they entered NRG and pushed for a sale of its renewables business. NRG is the largest independent energy producer in the country, and it could become leaner and less susceptible to downturns in the industry if it were agile.

To this end, NRG is aiming for a billion in cost savings on top of the sale of its renewable and parts of its conventional energy holdings. The goal is to lower debt, so the company can pay a higher dividend or invest in higher-yielding businesses.

Best Stocks to Buy Right Now: Vertex Pharma (VRTX)

Best S&P 500 Stocks of Q3: Vertex Pharma (VRTX)
Source: Shutterstock

YTD: 106.3%
Industry: BioTherapeutics

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the best S&P 500 stock of 2017 so far, and you’ve probably never heard of it. Well, you’re an InvestorPlace reader, so, of course you have! But assuming you’re not, and you’ve waltzed over here from one of those fly-by-night pubs, then boy do we have news for you. VRTX stock could still put up double-digit gains through year-end.

That is, analysts project a 12-month price target of $179.08, which is 20% higher than Vertex stock’s perch as of this writing. For a biotech, analysts are surprisingly in agreement about VRTX, with 21 out of the 26 analysts covering it rating it a “buy” or “strong buy.” No “sell” recommendations.

Vertex already has its killer application, too, so it’s not just hope that’s driving VRTX shares. Data from its drug trials in July demonstrating three different combinations of its next-gen CFTR correctors showed a marked improvement in lung function. This puts Vertex on track to have the first drug to treat advanced-level CF patients for the underlying cause.

The proof is in Vertex’s pipeline. Its two cystic fibrosis (CF) drugs — Kalydeco and Orkambi — have increased combined revenues by 21% YoY. That number will only go higher if the company meets its goal to treat 90% of CF patients using next-gen triple combination regimens.

For the full year, Vertex projects total CF sales of between $1.84 billion and $2.07 billion, driven by kalydeco approval for use in patients with “residual function” mutations and Europe’s recent reimbursement agreements.

John Kilhefner is the deputy managing editor of InvestorPlace.com. He does not hold a position in any of the aforementioned securities. Follow him on Twitter at @jkilhefner.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/q3-best-stocks-to-buy-right-now/.

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