S&P 500 stocks hit an intraday all-time high of 3,395.06 on August 18. The next day, Apple (NASDAQ:AAPL), one of the index’s biggest name components, hit a $2 trillion market capitalization, the first publicly traded U.S. company to do so. Apple has now doubled its value in just 24 months.
But simply buying the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) won’t get you the kind of returns experienced by Apple shareholders. That’s because many of the index’s components have seen their market caps move sideways or fall in 2020.
Year to date through August 20, 288 of the 505 stocks in the S&P 500 are in negative territory, with 24 off by at least 50%. On the bright side, 217 are up, with 19 up by more than 50%.
Here are 10 S&P 500 stocks to buy for growth and value:
- Tractor Supply (NASDAQ:TSCO)
- Cadence Design Systems (NASDAQ:CDNS)
- Paypal (NASDAQ:PYPL)
- Abiomed (NASDAQ:ABMD)
- Carrier Global (NYSE:CARR)
- Royal Caribbean (NYSE:RCL)
- Coty (NYSE:COTY)
- Diamondback Energy (NASDAQ:FANG)
- Wells Fargo (NYSE:WFC)
- Delta Air Lines (NYSE:DAL)
To keep things interesting, I’m picking five stocks down 50% or more in 2020, and five that are up by 50% or more. There’s a growth proposition for every kind of investor.
S&P 500 Stocks to Buy Up 50% YTD: Tractor Supply (TSCO)
YTD Return: 65.5%
5-Year Return: 11.3%
If you’re looking for one of the best career moves in the retail industry over the past year, my vote goes to Hal Lawton. He resigned from Macy’s (NYSE:M) in the middle of the 2019 holiday shopping season to become the Chief Executive Officer of Tractor Supply, one of the best performing S&P 500 stocks of 2020.
Very few retailers are having a strong year in the markets, but Tractor Supply, with 1,881 stores across the country focusing on recreational farming, is doing just fine.
Lawton, who was President at Macy’s before resigning, got a $1 million cash bonus for joining Tractor Supply and approximately $8 million in restricted and performance share units. Talk about winning the boardroom lottery.
In May 2016, I recommended TSCO stock for investors’ retirement portfolios. Four years later, I wouldn’t change a thing.
Cadence Design Systems (CDNS)
YTD Return: 56.5%
5-Year Return: 38.1%
A little over a year ago, my InvestorPlace colleague Luke Lango shone a spotlight on Cadence’s 65% YTD gain halfway through 2019. While not quite at 65% in 2020, it’s building quite a 24-month performance.
At the time Luke felt its valuation, at 32-times forward earnings, was a little rich, considering historically it averaged a much lower multiple. Well, no fault of Luke’s, Cadence kept banging out the profits.
On July 20, the company reported solid quarterly results, with $184.6 million in non-GAAP profits (14.6% increase year over year) from $638 million in sales (10% increase YOY). For 2020, the computational software expert expects top-line sales of at least $2.59 billion and non-GAAP earnings per share of $2.50 to $2.56 a share.
Cadence generated $770 million in free cash flow in the trailing 12 months; it’s increased FCF in each of the last three years. That’s a sign of a healthy company.
YTD Return: 77.9%
5-Year Return: 38.9%
Last November, I wondered how fast PayPal stock could get to $200. At the time, it was trading at $100. I argued that PayPal was a stock worth owning, despite what some viewed as a nosebleed valuation. Further, I felt it could double in price by April 2022.
Well, guess what? I was wrong. PYPL stock did the trick in nine months, almost two years faster than my prediction, hitting $200 in early August.
So how long will it take to hit $400? Not long at all. In fact, it could be very soon, accoridng to my InvestorPlace colleague Luke Lango:
“[I]t is quite likely that Covid-19 permanently accelerated e-commerce adoption. Of all the consumers that have pivoted to online shopping amid the pandemic, many of them will stick. To that end, while PayPal won’t sustain ~30% volume growth, Covid-19 will permanently accelerate the adoption of digital payment methods globally, and by extension, PayPal’s growth trajectory for several years.”
I agree with my colleague that there is enormous upside potential for owners of PYPL stock over the next few years. Barring some significant market correction, it wouldn’t surprise me if it were able to double a second time by my original prediction of April 2022.
A 300% return over 29 months is something to write home about. You want PayPal in your portfolio.
YTD Return: 84.3%
5-Year Return: 24.6%
How good is Abiomed’s long-term performance? If you bought $10,000 of ABMD stock 15 years ago, today, you’d have almost $332,000, enough to buy a beautiful vacation property somewhere.
On August 4, the Food and Drug Administration approved the company’s Impella heart pump for use with an oxygen machine to treat patients with heart and lung failure caused by the novel coronavirus.
The stock jumped to a 52-week high on the news. While it’s since fallen back some, it’s still delivering for shareholders in 2020, just as it always has.
I like to say that companies that save you money or time will win in the long run. Well, add companies that save people’s lives to the list.
A 42-year-old Covid-19 patient with no previous heart troubles was recently saved by the procedure approved above. It’s hard not to cheer for this kind of company.
Carrier Global (CARR)
YTD Return: N/A
5-Year Return: N/A
As public companies go, Carrier Global is a rookie, but don’t have it confused as inexperienced. The heating, ventilation, air conditioning and refrigeration company that was one of three companies spun-off by the former United Technologies in early April. The other two companies were Raytheon Technologies (NYSE:RTX), an aerospace and defense company, along with Otis Worldwide (NYSE:OTIS), which is one of the world’s leading elevator companies.
For every 10 shares held in United Technologies, shareholders got 10 shares of Carrier and five shares of Otis. United’s remaining aerospace business then merged with Raytheon to form Raytheon Technologies, and the rest, as they say, is history.
CARR stock gained 23% in July due to improving business conditions that reduced investor fears over its high debt level. As of June 30, it had net debt of $9.3 billion, or 34% of its $27.3 billion market cap.
While it hasn’t fully recovered from the Covid-19 sales slump, it’s on its way back, which should lead to further gains.
S&P 500 Stocks to Buy Down 50% YTD: Royal Caribbean (RCL)
YTD Return: -53.7%
5-Year Return: -4.4%
Timing is everything.
If you bought Royal Caribbean stock at the market bottom in March 2009, you’d be sitting on an annualized total return of 22.5%, well ahead of the S&P 500. However, if you bought at an all-time high of $135.32 in mid-January, you’ve lost more than half your investment.
The former investor is throwing some of their unrealized profits into a future cruise while the latter is pulling their hair out, unsure if they’ll ever be made whole. If you’re in the second boat, you can relax, because I believe you will.
My InvestorPlace colleague Patrick Sanders recently suggested that investors shouldn’t give up on Royal Caribbean. He believes the best is yet to come despite a 45% gain in the past three months:
“Speaking to industry analysts, [RCL CEO Richard] Fain said that more than 60% of bookings the company has for 2021 are new reservations, rather than those being rescheduled from canceled 2020 vacations.”
Sanders is so confident about RCL’s future that he bought its stock earlier in 2020 and has already doubled his money. Good work.
As I’ve said on several occasions since Covid-19 crippled the travel industry, cruising will come back. Furthermore, as my colleague alluded to with the Silversea Cruises acquisition, CEO Richard Fain is a rockstar in the industry. Bold moves such as buying the remainder of the luxury cruise line are a reminder of why he’s been running the company since 1988.
Of the five stocks down more than 50% YTD, RCL is the one I think has the best chance of delivering long term for investors. But you’ll have to be patient.
YTD Return: -64.5%
5-Year Return: -26.7%
As of the beginning of March, the beauty company made famous by its association with the Kardashians was 60.8%-owned by a subsidiary of JAB Holding Company, a conglomerate controlled by Germany’s Reimann family.
JAB is a large, private equity firm that owns or controls many household names across several different consumer-facing sectors of the economy. Those household names include Keurig Dr. Pepper (NYSE:KDP), Peet’s Coffee, Krispy Kreme, Panera Bread, Bruegger’s Bagels, Bally and many more.
Of all its investments, Coty’s has by far been the worst performer to date. However, JAB Holding Managing Partner Peter Harf intends to change this. He recently signed on as Executive Chairman while hiring industry veteran Sue Nabi as CEO. Nabi has previously operated several large cosmetic firms, including Lancome and L’Oreal.
It’s not going to be easy for the duo, but if anyone can resurrect the business, it’s these two.
Diamondback Energy (FANG)
YTD Return: -52.2%
5-Year Return: -8.7%
Last October, I picked 10 stocks to buy for the long haul regardless of the results from its Q3 earnings reports. Because I wanted to diversify by sector, Diamondback made the cut for energy.
“If you invested $10,000 in FANG five years ago, today you’d have $13,094.90. That sounds bad until you consider that the same investment in its oil & gas exploration and production peers would have resulted in a loss of $4,406.52 over the same period. The grass is always greener,” I wrote on Oct. 28, 2019.
At the time, FANG stock was down 15% on the year, trading around $87. It’s since lost 53% of its value hence, why its 5-year return is in negative territory.
So, what do I do, I recommend Diamondback a second time, this time as part of a collection of NASDAQ stocks worth owning. That was August 14.
My argument for buying FANG was that it was significantly cheaper than Exxon Mobil (NYSE:XOM) based on operating cash flow, approximately three times cheaper to be exact.
As I said, if you’re going to take a flyer on oil and gas, Diamondback seems like the bet you want to make.
Wells Fargo (WFC)
YTD Return: -53.2%
5-Year Return: -10.8%
Of all the major banks, Wells Fargo is the one I’d least want to own. On July 14, as part of its Q2 2020 report, the bank reduced its quarterly dividend by 80% to 10 cents a share. A few days later, I argued that very few bank stocks were worth owning in this economic environment. Certainly, there are much safer bank buys.
Back in March 2018, I wondered when Warren Buffett, Wells Fargo’s largest shareholder, was going to ditch the stock, as it had gone sideways for the better part of four years. Well, he’s slowly reducing his stake in the bank.
In the second quarter, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) sold 26% of its shares in Wells Fargo. The holding company now owns just 6% of the company, its lowest stake in years.
I’m not going to provide some fancy explanation of why you should buy WFC stock. Let’s say it’s my contrarian hunch that if Buffett’s selling, you ought to be buying.
Just don’t buy a lot of it.
Delta Air Lines (DAL)
YTD Return: -52.0%
5-Year Return: -7.0%
Over the past three months, the airline industry as a group has recovered some of its losses on the year, up 26.5%. Delta’s done slightly better, gaining 70 basis points over the same period.
Delta announced August 20 that starting in October, it will fill 75% of the seats, up from 60% currently. However, it will continue to leave the middle seat empty into January to keep passengers happy.
While cosmetic, it’s a brilliant move, something I discussed in July:
“However, the fact that Bastian [Delta CEO] is sticking to his guns and keeping the middle seat empty through September is impressive. This, despite the airline announcing a $5.7 billion loss in the second quarter and knowing that leaving the middle seat unsold costs it substantial near-term revenue, suggests to me that he understands why people are afraid to fly right now.”
Of the major airline stocks, I like DAL stock because of Bastian’s leadership, and Southwest Airlines (NYSE:LUV) because of its balance sheet. The other two, in my opinion, are a pass.
As my colleague did with RCL stock, I do think you can make money on the airlines. You have to be patient and willing to accept some extra volatility as we make our way back to normal travel volumes. It’s not going to be easy.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.