U.S. stocks have tumbled almost 15 per cent from a 52-week high three months ago, as investors moved out of riskier assets on signs the economy is slowing. Still, a diverse group of S&P 500 stocks, from MasterCard to Lorillard, have climbed as much as 84 per cent this year.
The S&P 500, the benchmark for equity investments in the U.S., is now down almost 8 per cent in 2011 after two years of strong gains. The decline is largely the result of a tumultuous August, when the U.S. saw its triple-A credit rating downgraded by Standard & Poor’s for the first time in history following a tense debate over the debt ceiling. Stocks, as measured by the S&P 500, have slumped 10 per cent this month.
The poor handling of the debt issue by Congress is only one reason investors are more pessimistic than optimistic today, as many other concerns emanating from around the globe keep piling up. Europe’s debt woes, driven by Greece, threaten to stall economic growth. Japan fell back into a recession after the earthquake and subsequent tsunami in March, and China, the engine of global growth, is stalling amid higher interest rates.
Banking and technology stocks have borne the brunt of declines in the U.S. Hudson City Bancorp, AIG and Bank of America are down more than 40 per cent this year, while Akamai Technologies, F5 Networks, Juniper Networks and Tellabs have plunged more than 44 per cent.
On the other hand, some large-cap stocks from a variety of sectors are posting big gains this year, supported by fat profit margins and increasing revenue growth. The 10 best-performing constituents of the S&P 500 are presented on the following pages, ranked by total return through the first eight months of the year. (Year-to-date returns are as of Aug. 25)
10. Discover Financial
Company Profile: Discover is a U.S. credit card issuer, and offers customers other consumer loans and deposit products.
2011 Total Return: 32.3 per cent
Unlike most financial stocks that have been mired in the red, shares of Discover have outperformed the market this year. In July, the stock hit a 52-week high of $28 shortly after Discover reported a 133 per cent increase in second-quarter net income. The jump in profit came thanks to an increase in card sales volume and total loans, as well as a decline in provisions for loan losses.
The conservative lending approach has made the stock a favorite among analysts. Thirteen researchers have a “buy” rating on shares, including FBR Capital and Sandler O’Neill, and another 10 say investors should hold onto shares. No Wall Street firm has a “sell” rating on the stock, according to a Bloomberg survey of analysts. The average price target of $29 represents upside potential of 17 per cent.
9. Wynn Resorts
Company Profile: Run by Steve Wynn, Wynn Resorts is the owner of the casino resorts Wynn Las Vegas, Encore at Wynn Las Vegas and Wynn Macau.
2011 Total Return: 33 per cent
Wynn continues to benefit from strength in Macau, with revenue in the Chinese gambling hub growing 37 per cent in the second quarter. However, Vegas was also a driver of earnings in the second quarter, as revenue climbed 23 per cent. Shares hit a 52-week high of $173 in July shortly after Wynn reported the results.
Analysts expect that shares will reverse the recent pullback, with the average price target of $165 representing upside potential of 17 per cent. Ten research firms have “buy” ratings on Wynn, including Jefferies, while another 17 have a “hold” rating on the stock.
8. Intuitive Surgical
Company Profile: Intuitive Surgical designs, manufactures and markets its da Vinci robotic surgical systems, EndoWrist instruments, and surgical accessories.
2011 Total Return: 34.5 per cent
Shares of Intuitive Surgical briefly topped $400 in July after the company posted second-quarter financial results. The company posted earnings of $2.91 a share on revenue of $426-million, which both topped analysts’ expectations. The report was strong enough to push Goldman Sachs analysts to upgrade the stock the next day to “neutral” from “sell.”