The S&P 500 wrapped up its worst year since 2008, tumbling 20%. Persistently high inflation, a hawkish Fed, Russia’s invasion of Ukraine and a resurgence of COVID-19 cases in China weighed heavily on investor sentiment. The combination has sparked fears of a recession anytime soon.
SPDR S&P 500 ETF Trust
SPY
, the proxy version of the S&P 500 Index, plunged about 18% last year. Despite the decline, some of the stocks in SPY’s portfolio have risen more than 40%. We have highlighted five stocks from different sectors that have a Zacks Rank #2 (Buy or #3 (Hold) with positive estimated earnings growth for 2023. These are
Hess Corporation
HES
,
First Solar Inc
.
FSLR
,
Cardinal Health Inc.
CAH
,
Arch Capital Group Ltd.
ACGL
and
Lamb Weston Holdings Inc.
LW
.
Energy was the only top-performing sector in 2022, with 58% gains. This marks the best year on record for the energy sector. Factors like easing Omicron concerns, supply shortages and geopolitical tensions in Eastern Europe and the Middle East have boosted oil prices. Other sectors like utilities, consumer staples and healthcare lost 1.4%, 3.2% and 3.6%, respectively. The housing market has slowed down with higher mortgage rates, higher home prices, falling home sales and rising inventories (read:
Energy ETFs Beat S&P 500 in 2022, More Gains Likely in 2023
).
On the other hand, information technology, communication services and other high-beta sector were badly hit by sticky inflation and aggressive rate hikes from the Fed.The central bank has been on an aggressive tightening policy to fight the skyrocketing inflation. It has raised its interest rate by 475 bps this year in the fastest hikes since the 1980s and sent the benchmark interest rate to 4.25-4.50% – the highest level in 15 years. The central bank now projects at least a 75 bps rate hike, peaking at 5.1% by the end of 2023, 50 bps higher than the previously projected 4.6% back in September. The rate will then be cut to 4.1% in 2024.
The tech sector relies on easy borrowing for superior growth, and its value depends heavily on future earnings. A rise in long-term yields lowers the present value of companies’ future earnings, sparking fears of overvaluation.
Let’s take a closer look at the fundamentals of SPY.
SPY in Focus
SPDR S&P 500 ETF Trust holds 503 stocks in its basket, with each accounting for no more than 6% of assets. This suggests a nice balance across each security and prevents heavy concentration. The fund is widely spread across sectors, with information technology, healthcare and financials accounting for a double-digit allocation each.
SPDR S&P 500 ETF Trust has AUM of $353.5 billion and charges 9 bps in fees per year. The product trades in a heavy volume of around 72 million shares a day on average, ensuring higher liquidity with a tight bid/ask spread, leading to lower trading costs for investors. SPY has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see:
all the Large Cap Blend ETFs here
).
Below we have highlighted the above-mentioned five best-performing stocks in the ETF.
Best-Performing Stocks of SPY
Hess Corporation
is a global integrated energy company. The company is engaged in the exploration, production, development, transportation, purchase and sale of crude oil, natural gas liquids and natural gas. The stock soared 91.6% in 2022.
Hess has an estimated earnings growth rate of 27% for this year. It has a Zacks Rank #3 (Hold) and a Growth Score of A.
First Solar
is a leading global provider of comprehensive PV solar energy solutions and specializes in designing, manufacturing and selling solar electric power modules using proprietary thin-film semiconductor technology. The stock jumped 71.9% last year.
First Solar earnings are expected to grow a massive 1,040.2% this year. The stock carries a Zacks Rank #3 and a Growth Score of B.
Cardinal Health
is a nationwide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The stock climbed 49.3% in 2022.
Cardinal Health has an expected earnings growth rate of 13.3% for the fiscal year (ending June 2024). It carries a solid Zacks Rank #2 and a VGM Score of A. You can see
the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here
.
Arch Capital
offers insurance, reinsurance and mortgage insurance across the world. The company offers a full range of property, casualty and mortgage insurance and reinsurance lines while focusing on writing specialty lines of insurance and reinsurance. The stock has gained 41.2%.
Arch Capital has an estimated earnings growth rate of 38.5% for the next year and a Zacks Rank #3. It has a solid Value Score of B.
Lamb Weston
is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries, and also provides a range of appetizers. The stock soared 41% last year (read:
5 Best-Performing Sector ETFs of 2022
).
Lamb Weston has an estimated earnings growth of 28.5% for the next fiscal year (ending May 2024). The stock has a Zacks Rank #3 and a VGM Score of A.
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