7 Stocks to Buy from the SPDR Portfolio S&P 500 ETF
Investors and traders use the S&P 500 Index for many different strategies. They could trade the index by buying it through an exchange-traded fund (ETF) or index fund; buy the index for the long-term broad-based stock market participation that it affords; or short the index as a hedge against other stock market or non-stock-market participation, such as real estate.
In fact, the S&P 500 is said to represent about 80% of the total U.S. stock market capitalization, and part of this is because it is modified cap weighted. In cap-weighting methodology, the bigger a company is, the more weighting the company gets in the index.
As I mentioned, you can buy the S&P 500 index through an ETF like the SPDR Portfolio S&P 500 ETF (NYSEARCA:SPY) — but you can also get additional desired exposure by picking among the top stocks in the index.
After knowing your investment objective and profile, consider the following companies in the S&P 500. They look attractive for gains, even in this difficult market.
- AT&T (NYSE:T)
- Tesla (NASDAQ:TSLA)
- Ford Motor Company (NYSE:F)
- General Electric (NYSE:GE)
- PayPal Holdings (NASDAQ:PYPL)
- Lam Research (NASDAQ:LRCX)
- Citigroup (NYSE:C)
S&P 500 Stocks to Buy: AT&T
AT&T reported that in 2022, it expected adjusted earnings of $3.10 to $3.15 per share, even though its revenue growth is expected to be in the low single digits. This puts its expected P/E multiple at approximately 7.4 times, which seems reasonable.
The company is attempting to lower its operating costs. This could be done by increasing its efficiencies. AT&T also plans to increase its 5G and its fiber-based connectivity products.
Thanks to it combining its WarnerMedia arm with Discovery (NASDAQ:DISCA), AT&T is cutting its dividend, which has been expected. SeekingAlpha.com reports that “Chief Financial Officer Pascal Desroches addressed the rampant questions emerging ever since AT&T signaled last spring that a media exit would mean a dividend nearly halved.” He reported the new dividend will be $1.11 a share.
This new rate puts the dividend at 4.8%, which is still reasonable. So AT&T is not as juicy a dividend play anymore, but is still worth considering in the stocks to buy group for its potential future growth.
Tesla joined the S&P 500 Index in December 2020, and in terms of market capitalization float size, it was the biggest company added to the S&P 500 index in history. The company is well known for its groundbreaking all-electric vehicles. But what is less well known is that Tesla also makes clean energy generation and storage products. As printed on its website: “Tesla believes the faster the world stops relying on fossil fuels and moves towards a zero-emission future, the better.”
To accomplish its vision, TSLA builds clean energy products, letting individuals both collect and store solar energy. Tesla offers such devices as the solar roof or the PowerWall, which help homeowners, businesses, and utilities to take part of their energy needs into their own hands.
As far as valuation, Nasdaq estimates a forecast 12-month forward price/earnings to growth (PEG) ratio of 2.95, based on estimated earnings for the 12-month period ending in February 2023. This is a high ratio but could be considered reasonable given the promise of the electric vehicle industry.
Ford Motor Company (F)
Ford is another company that is in the early stages of increasing its commitment to the electric vehicle (EV) space, and its shift has started. The company recently announced that is investing $22 billion in electrification through 2025. Ford has all-electric products already available, including the Mustang Mach-E and its E-Transit van. The company recently released its F-150 Lightning as well — a welcome addition to its all-electric truck line.
In March, Ford announced that its combustion engine business, called Ford Blue, will be a separate business from its EV models business, which will be known as Ford Model e; both businesses would still be under Ford Motor Company. Ford has U.S. market share of about 12.5%, along with about 6.5% in Europe and about 2.4% in China.
Nasdaq.com reports that Zacks Investment Research, based on the forecasts of four analysts, reports a consensus earnings per share of 44 cents for the upcoming quarter; last year for the same quarter Ford earned 89 cents.
General Electric Company (GE)
General Electric is a far different company today than it was in the past, which makes it an interesting inclusion in a list of stocks to buy. Instead of being a strictly industrial company, according to ETF Daily News, the company is involved in technology, power, renewable energy, aviation and healthcare, among many other operating segments. Recently Zacks Investment Research upgraded shares of General Electric to a “hold” rating and set a $94 target price on the stock.
And General Electric is poised to continue its growth.
Chairman and CEO H. Lawrence Culp Jr. said, “We’re running GE’s businesses better, creating value for shareholders today and tomorrow. Our talented, resilient team has embedded lean deeply across GE, and we have decentralized how we run the company. As a result, we’re poised to deliver sustainable operational and financial improvements, setting us up to generate between $5.5 to $6.5 billion of free cash flow in 2022 and more than $7 billion in 2023. Our stronger balance sheet positions us to deploy capital to invest in growth.”
PayPal stock has really tumbled. It’s down approximately 56% in the past year, but if earnings bear out, PYPL could be a buy for long-term appreciation.
MarketBeat shows company guidance for the fiscal year 2022 at $3.72 a share. This puts the expected P/E ratio at about 29 times, and its PEG ratio right around 1, which is reasonable, especially in light of its expected growth.
Brett Horn, Senior Equity Analysts at Morningstar said, “PayPal maintained strong growth in terms of payment volumes in the fourth quarter … We continue to believe the narrow moat company is well-positioned to benefit from secular trends over time, but an end to pandemic tailwinds and its eBay relationship could make for somewhat tougher sledding going forward.”
Lam Research (LRCX)
Lam Research is another of the S&P 500 stocks worth a look. The company recently announced “a new suite of selective etch products … Composed of three new products – Argos®, Prevos™ and Selis® – Lam’s selective etch portfolio provides a powerful advantage in the design and manufacture of advanced logic and memory semiconductor solutions.”
In today’s geopolitical-risk-filled investment world, an investor has to consider Lam’s international exposure, while also understanding that this exposure could become an advantage, depending on future events. Its revenue is derived from the following regions: China, 26%; Korea, 25; Taiwan, 18%; Japan, 12; the U.S., 6%; Southeast Asia, 9%; Europe, 4%.
In its last report, the company reported good U.S. gross margins: 46.8%.
Lam Research is expected to earn $34.40 a share in 2022. Its expected p/e for 2022 is a reasonable 15 times.
With interest rates climbing, banks’ lending spreads should widen, and bank stocks should do better than in the days of very low interest rates (which are looking pretty much over). Citigroup should benefit along with the rest of that group. C stock is truly global, doing business in over a hundred countries.
MarketBeat.com reported that stock analysts at Jefferies Financial Group revised its estimates downward to $6.80 in earnings per share for fiscal year 2022, and $7 in earnings per share for fiscal year 2023. Morningstar recently decreased its fair value estimate from $79 a share to $83 a share, but still considers the stock price undervalued.
The stock pays a well-covered dividend of $2.04 a share.
On the date of publication, Max Isaacman did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.