The S&P 500 index turns positive for 2020 despite surging new coronavirus cases that raised questions over continued recovery as well as weak earnings expectations. This is especially thanks to a combination of unprecedented levels of fiscal and monetary stimulus, positive development in the coronavirus vaccine and recovering economic fundamentals.
The latest bouts of data on jobs, manufacturing and consumer confidence suggest that the economy is improving. The Fed’s latest Beige Book survey showed that the United States saw an uptick in business activity in the beginning of July as states eased restrictions to contain the novel coronavirus pandemic.
In particular, the technology sector outperformed, climbing about 18% while the consumer discretionary index jumped 15%. The communication services index has risen nearly 6% while the healthcare sector also delivered positive returns. Additionally, the five most valuable S&P 500 companies — Apple AAPL, Microsoft MSFT, Amazon.com AMZN, Alphabet GOOGL and Facebook FB — account for 23% of the index’s market capitalization, the highest level on record, according to Goldman Sachs (read: 5 Best-Performing Stocks in Ultra-Popular Tech ETF).
However, the rally has not been broad based with many stocks still in red in the S&P 500 index. Additionally, the U.S. equity valuations stand at their highest level since the dot-com boom.
Against such a backdrop, the proxy version of the S&P 500 Index, SPDR S&P 500 ETF Trust SPY, has gained 2% in the year-to-date timeframe. Let’s take a closer look at the fundamentals of SPY and its best stocks:
Inside the SPY
The ETF holds 505 stocks in its basket with each accounting 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, consumer discretionary, and communication services with double-digit allocation each. It has AUM of $291 billion and charges 9 bps in fees per year from investors. The product trades in heavy volume of around 132.7 million shares a day on average, ensuring higher liquidity with a tight bid/ask spread, leading to lower trading costs for investors (see: all the Large Cap Blend ETFs here).
SPY has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Though most stocks in the fund’s portfolio are in green this year, we have highlighted 10 stocks that are leading the way in the ETF and have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold):
Best-Performing Stocks of SPY
DexCom Inc. DXCM: This medical device company is focused on the design, development and commercialization of continuous glucose monitoring systems. DexCom has risen 97.7% so far this year and has an estimated earnings growth rate of 21.2% for the year. It has a Zacks Rank #3.
Nvidia Corporation NVDA: It is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. The stock has projected earnings growth rate of 36.4% for fiscal year (ending Jan 2021) and has rallied 78.7% this year so far. It has a Zacks Rank #3 (read: Nvidia Tops Intel by Market Cap: ETFs to Buy).
Amazon.com Inc. AMZN: It is one of the largest e-commerce providers with extensive operations in North America and rapidly increasing reach across the globe. The stock has risen 73% so far this year and has a projected earnings decline of 12.2% for this year. It has a Zacks Rank #3.
West Pharmaceutical Services Inc. WST: This global drug delivery technology company applies proprietary materials science, formulation research and manufacturing innovation to advance the quality, therapeutic value, development speed and rapid market availability of pharmaceuticals, biologics, vaccines and consumer healthcare products. The stock has climbed 67.5% and has an estimated earnings decline of 11.4%. It has a Zacks Rank #2.
PayPal Holdings Inc. PYPL: It operates as a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. The stock has jumped 65.3% this year. It has estimated earnings growth of 7.1% for the year. PayPal Holdings has a Zacks Rank #3.
eBay Inc. EBAY: This company operates the marketplace and classifieds platforms that connect buyers and sellers worldwide. It has an estimated earnings growth of 23%. eBay is up 61.9% in the year-to-date timeframe and has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
ServiceNow Inc. NOW: This company provides cloud computing services that automate digital workflows to accelerate enterprise IT operations. It has delivered robust returns of 59.1% so far this year and has estimated earnings growth of 27.7% for this year. ServiceNow has a Zacks Rank #3.
Netflix Inc. NFLX: This is a provider of Internet television (streaming services) and DVD-rental services. It has gained 55.3% so far this year and has an estimated earnings growth rate of 539% for this year. The stock has a Zacks Rank #3 (read: ETFs to Watch as Netflix Drops on Weak Subscriber Outlook).
Tractor Supply Company TSCO: It is the largest retail farm and ranch store chain in the United States. The stock has risen 54.8% and has an estimated earnings growth of 20.5% for this year. It has a Zacks Rank #3.
Citrix Systems Inc. CTXS: This company is a leading provider of virtualization, networking and cloud computing solutions to more than 400,000 organizations worldwide. Having a Zacks Rank #3, the stock rose 51.2% this year. Its earnings are expected to decline a modest 2.3% this year.
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