NXPI - Top And Bottom S&P 500 Stocks To Consider In 2024

2024-01-16 10:50:09 ET

Summary

• Investors are monitoring the S&P 500 stocks as the index starts the year with a pullback and uncertainty over interest rate cuts.
• Top-performing stocks include Juniper, Nvidia, Eli Lilly, Viatris, and Organon, while solar energy stocks and Boeing are among the worst performers.
• Drug companies dominate the list of best-performing stocks, indicating a rotation into value drug stocks by investors.

Investors are watching the underlying S&P 500 ( SP500 ) stocks after the index returned ~25% in 2023 . 2024 started with the index pulling back, presumably on profit-taking. The market is struggling to reconcile expectations of no less than six interest rate cuts this year. The news media is not responsible for rumors of 25 bps times six cuts (1.50% total). On JPMorgan’s ( JPM ) conference call, the company estimated its net interest income of $88 billion by including six cuts this year .

CEO Jamie Dimon does not speak for Federal Reserve Chair Jerome Powell, so investors should not count on easing monetary policy to buy S&P 500 stocks. To get started on assessing the stocks, look at the top and bottom 10 performing stocks as a starting point. Then look at stocks in 11th place or lower.

To build this list, I downloaded the 503 holdings in the SPDR S&P 500 Trust (SPY) from the SPDR website and imported the list into a watch list.

Top 10 Performance Stocks in 2024

The best-returning stocks are:

Data compiled by Stock Rover

Juniper ((JNPR)) skews 2024’s best-returning stock on the index after Hewlett Packard Enterprise ( HPE ) confirmed it is buying the firm for $14 billion or $40 a share. JNPR stock closed at $37.51, giving investors around $2.50 in additional upside once the deal closes.

Besides buying JNPR's stock until closing, the acquisition suggests that Ubiquiti ( UI ), Ciena ( CIEN ), and Nutanix ( NTNX ) are potential stocks to buy. However, these stocks score poorly on Seeking Alpha’s quant rating:

Nutanix has a similar market capitalization to that of Juniper. The network firm, which spent several years pivoting to a software model, may attract a bidder. Alternatively, the S&P 500 index may include the firm once Juniper delists.

Drug Manufacturers Rise

When I last suggested that value investors might rotate out of artificial intelligence stocks to drug companies, the prediction was only half-right. Thanks to stronger shipments to China and media coverage on the 2024 Consumer Electronics show, Nvidia has added over 10% this year. Investors continued to buy obesity drug supplier Eli Lilly.

Generic drug supplier Viatris, formed from a spinoff between Pfizer ( PFE ) and Upjohn, said it plans to generate at least $2.3 billion in free cash flow per year over the next three to five years . Investors with a good memory will recall Viatris forecasting a $4 billion FCF per year in 2021.

VTRS stock has a “Hold” rating, which suggests the stock has minimal upside after the 7.6% return.

Oddly enough, Teva ( TEVA ), another generic drug giant, gets a “Buy” rating. Teva is a long-time out-of-favor value drug stock. At a healthcare conference on Jan. 9, 2024 , Teva cited specialty medicine, with a focus on neurology, respiratory, oncology, and its biopharmaceuticals business as its growth drivers.

Investors should also look at Organon ( OGN ), whose stock is up 16% YTD. Markets reacted positively to the firm’s full-year 2024 revenue growth forecast. Organon expects to achieve low single-digit percentage revenue growth this year . The revenue of $6.15-$6.22 billion meets the analyst forecast of $6.22 billion.

Top 11-20 Stocks

Readers who look at the 11th best-performing stock and lower will find:

Once again, the drug companies dominate the list. This reaffirms the view that investors rotated into value drug stocks. Gilead, Regeneron, and AbbVie have strong quality scores, while Moderna scores 43/100. This suggests that MRNA’s stock risks losing buying momentum in the coming weeks. It has a promising vaccine pipeline for cancer but its Covid vaccine growth continues to wane.

Worst 10 Stocks So Far in 2024

Two solar energy stocks are the worst performers on the index.

In mid-December, a Citibank analyst speculated that SolarEdge and Enphase would get a bigger tax credit than previously estimated . Earlier this year, SolarEdge CFO Ronen Faier said that weak solar demand will weigh against its results in the third and fourth quarters . Not only does SEDG stock have an SA Quant rating of “Sell,” but its quant grades are weaker than that of Enphase.

Boeing ((BA)) unexpectedly fell when a cabin door plug blew out. CEO Calhoun said that Boeing must acknowledge the aircraft’s quality issue . The negative news acted as a catalyst for the sell-off. BA stock still trades at a weak valuation, even after dropping this year.

Boeing gave sellers what it needed: an excuse to sell shares and to take profits. Similarly, in the tourism sector, Norwegian Cruise ((NCLH)) is the fourth-worst stock on the index with a 50/100 quality score. Recently, the Treasury yield “uninverted,” which signals a higher chance of a recession. If markets expect six rate cuts, they should also brace for more job cuts and a slower economy in 2024. The market sold cruise line stocks aggressively .

In the electric vehicle market, I picked three stocks that could fall to zero . Hertz’s ( HTZ ) decision to dump 20,000 EVs , mostly Tesla, is the unexpected negative catalyst for the industry. Tesla stock lost 12% so far. Lithium miner Albemarle ((ALB)) is on the list, too. Lithium prices could fall again in 2024, after declining in 2023. Prices could fall to around $30,000 per tonne, compared to $52,450 in 2023 .

Look out for ALB stock trending lower.

Retailer V.F. is still in a downtrend after a hack likely hurt its holiday sales. Etsy is lower on investors expecting demand for handmade or vintage items to fall. Consumers will continue cutting back on spending as the economy worsens.

Worst Performer: 11 and Lower

Readers who screen for stocks that are the 11th worst performer and lower will find many automotive names. To repeat, rising risks of a recession as inflation remains high will hurt auto stocks. Consumers will first cut travel and luxury item expenses (Estee Lauder is on the list). They will then delay plans to buy an automobile. Both NXP Semiconductors and Aptiv are advanced technology suppliers to the industry and are on the list below. Used auto retailer CarMax is down 9.6%.

Those who have a vehicle might hold off on expensive repair bills hurting BorgWarner’s prospects.

Walgreens, a drug store, is a worthwhile stock to watch. The firm posted a strong forecast and beat expectations in its Q1/FY 2024 report . Income investors widely expected the firm’s hefty ~50% dividend cut. The stock trades at a discount, with an A- on valuation.

Your Takeaway

Investors should watch Schwab money fund yield as a guide. The stock should offer a dividend that is at least in the 5.23-5.38% range. In addition, when the stock price loses more than risk-free interest, consider selling early. This minimizes the size of the loss for 2024.

The year is still early for stocks. Any unexpected news tends to create panic selling, as in the case of Boeing. Investors cannot prepare for those shock events. Still, to manage risks, they may use the quant scores as a guide.

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