It's always a good idea to look for stocks that will perform well in the near future.
This year has been a good year for major stocks, but other stocks need to step up to drive the S&P 500 index to continue rising for the rest of 2024.
However, for investors, which stocks are expected to perform strongly in the second half of the year is a big question.
Barron's found seven candidate stocks — they're not the big six tech giants — these stocks are growing in Wall Street popularity, profit expectations are rising, and they haven't significantly outperformed the market.
The seven stocks are arranged in any order, namely materials giants 3M (MMM.N) and DuPont (DD.N), United Airlines (UAL.O), defense contractor Huntington Ingalls Industries (HII.N), mining company McMoRan Copper (FCX.N), consumer finance company Synchrony Financial (SYF.N), and Digital Real Estate Trust (DLR.N).
Three months ago, the average buying rating for these seven stocks accounted for 42% of the total rating. That ratio is now 60%. This combination adds 28 new buy ratings.
The average buying rating ratio for S&P 500 stocks is around 56%. The six major technology stocks — Nvidia (NVDA.O), Microsoft (MSFT.O), Alphabet (GOOGL.O), Meta Platforms (META.O), Amazon (AMZN.O), and Apple (AAPL.O) — have an average buying rating ratio of around 86%. Wall Street still loves the big tech stocks in the market.
Investors love these companies too. As of last Friday's trading day, the six giants' year-to-date average return was around 49%. The average return on S&P 500 stocks is 6%.
The seven stocks whose popularity on Wall Street has increased have a return of about 13%. This is lower than the S&P 500 return of 17% from the beginning of the year to date.
The return on the S&P 500 index is superior to the average return on S&P 500 stocks because the S&P 500 is a market capitalization-weighted index. The performance of these six major stocks boosted the return rate of the entire index.
One reason Wall Street's fondness for these seven stocks is rising profit expectations. Analysts' profit expectations for 2024 for this combination have increased by about 11% over the past three months. (3M's profit expectations require adjustments to its Solvent spin-off completed on April 1.)
In contrast, the six giants' profit expectations increased by 5%, while the average 2024 forecast for the overall index remained unchanged.
Wall Street's long-term profit growth forecast for these seven stocks is an average of about 8%, similar to the overall index, but lower than the growth rate of the six giants of about 11%.
However, due to slower growth, investors can take advantage of discounts. The average price-earnings ratio of these seven stocks is 15 times the expected profit for the next 12 months. The average price-earnings ratio for the S&P 500 is about 22 times. The six giants' price-earnings ratio is close to 31 times.
Despite higher valuations, the top six tech stocks are likely to continue to perform well. According to analysts' ratings, there's no reason for Wall Street to sell. Still, it's always a good idea to look for stocks that will perform well in the near future.