Last quarter’s top stocks may lead the market for the rest of 2021.
A lot of investors like to scour the list of stocks making new 52-week lows to find investment ideas. There is a natural contrarian instinct to look for value in companies that are falling sharply. Many astute traders actually prefer to buy stocks making new highs, however. For one thing, a high-quality company tends to make far more new highs than new lows over the course of its life. Momentum matters; as Newton’s first law states, an object in motion will stay in motion until something comes along to disturb it. A stock that is rallying tends to keep going up for longer than people might expect. As such, it’s worth looking at what stocks are working right now to see what may lead the way into year-end 2021. These are seven of the best performing stocks in the S&P 500 over the three-month period ending Oct. 15.
Devon Energy Corp. (ticker: DVN)
Devon was the only S&P 500 component to rise more than 60% over the past three months, which came on the heels of an absolutely sensational second quarter earnings report. Devon reported revenue growth of more than 500% year over year, flipping earnings from negative territory to a large gain. Since the first quarter, Devon also increased free cash flow sixfold. Struggling energy companies have gotten a new lease on life thanks to the recent surge in oil and natural gas prices. Devon was in grave peril a year ago, and could end up on the ropes again if the current inflationary wave subsides. For now, however, the company is flying high, and may have even further to run if oil continues its push toward $100 per barrel. That would mark oil’s highest price since 2014, and would likely set off another big round of speculation in energy names such as Devon.
APA Corp. (APA)
While Devon Energy has won the performance race over the past few months, fellow energy peer APA wasn’t far behind. It gained 53% since mid-July, and has nearly tripled over the past year. Like Devon, it has enjoyed a business renaissance; it more than doubled revenues in the second quarter of 2021 compared to the same quarter of last year. APA has been exciting its investors with promising developments out of the South American nation of Suriname. The country, which sits near oil-rich Venezuela, may also hold a bountiful supply of petroleum offshore. APA had been consistently falling for years until energy prices began rebounding. Its investments in the United States in fields such as the Alpine High failed to play out as hoped. However, the combination of better-looking prospects in Suriname and sharply higher oil prices may be enough to keep the turnaround rolling for APA stock.
Paycom Software Inc. (PAYC)
Paycom Software was the top S&P performer outside of the resources sector; shares surged 40% over the past quarter. Paycom is a leader in what is termed “human capital management.” In English, that means that Paycom’s software helps track employees from recruitment right up through retirement. It allows employers to easily manage things such as job applications, benefits and perks, scheduling, e-verification and other such tasks. The company consistently grows its revenues at around 25% per year and its earnings at an even faster clip. With the latest surge in Paycom’s stock price, it is now trading at more than 100 times earnings and 25 times sales. However, investors are willing to look past valuation for now, as a roaring economy has helped bolster the need for Paycom’s services.
The Mosaic Co. (MOS)
Energy isn’t the only commodity on a tear. The inflation wave has spread to fertilizer. That’s fantastic news for investors in Mosaic, which is up 36% over the last three months, making it one of the best performing stocks in the S&P over the same time period. Mosaic is a leading producer of phosphate, potash and nitrogen-based crop nutrients as well as animal feed, among other products. Analysts see the company’s revenues surging 42% in 2021 versus last year, rising to $12.3 billion. Thanks to the magic of higher profit margins, this 42% jump in revenues is anticipated to cause earnings to quintuple versus 2020. It’s currently uncertain how long the fertilizer squeeze will last; analysts forecast slightly lower earnings in 2022 and 2023 for Mosaic versus this year. Still, the stock is trading around nine times this year’s and next year’s earnings. No matter how far the inflation wave may run, farmers will still be buying Mosaic products. That makes MOS one of the more intriguing options to cash in on current supply chain troubles.
Advanced Micro Devices Inc. (AMD)
AMD was another of the top tech stocks in Q3. The global semiconductor shortage has been great news for many players in the industry. That would be fortuitous enough for AMD, but it is also getting to ride the wave of cryptocurrency mining demand. As if that weren’t enough, AMD continues to take advantage of the stumbles at chief rival Intel Corp. (INTC). All told, it’s been a fantastic year for AMD and Nvidia Corp. (NVDA) as far as demand goes. Skeptics can say the valuation for AMD stock seems strained. After all, it is selling at 45 times estimated 2021 earnings, and a big tailwind, cryptocurrency mining, may diminish as Ethereum moves from a proof-of-work to proof-of-stake mining algorithm. However, right now, bulls riding the upward trend are making money with AMD, which is one of the top performing stocks in the vaunted S&P 500, up 30% in the last three months.
Albemarle Corp. (ALB)
Turning to another commodity, lithium producer Albemarle surged 28% last quarter. Albemarle is a specialty chemical company with three main operating divisions: catalysts, bromine specialties and lithium. It’s the latter that is drawing most of the attention. The price of lithium hit fresh two-year highs in August, driven by strong electric vehicle sales and high demand from Chinese battery producers. Meanwhile, supply has been constrained in part due to the issues with the global shipping market. This makes leading lithium producers, such as Albemarle, an attractive way to get exposure to the electric vehicle market without taking the actual risks inherent in manufacturing and selling cars. Albemarle’s earnings dropped by about half in 2020 due to the pandemic, but are back on the upswing now. Over the next two years, analysts see the firm’s earnings doubling from the present level. Clearly, traders are making their moves to take advantage of that upcoming spike in profitability.
Tesla Inc. (TSLA)
Finally, it’d be difficult to round out a list of Q3 performers without mentioning Tesla. Despite more controversies involving Tesla and Elon Musk, shares are back on the upswing. Tesla shares surged more than 25% over the past three months. Tesla’s uneven rollout of its long-awaited self-driving software has disappointed some loyal vehicle owners. It also faces rising competition as the likes of Lucid Group Inc. (LCID) prepare to launch their own upscale electric vehicles into the marketplace. Regardless, Tesla shrugged off these concerns as shares moved back above the $800 mark. Perhaps investors are factoring in tax savings from the company’s recently announced move from California to Texas. In any case, Tesla stock continued to make the bears look foolish for yet another quarter.
Seven of the best performing stocks in Q3:
— Devon Energy Corp. (DVN)
— APA Corp. (APA)
— Paycom Software Inc. (PAYC)
— The Mosaic Co. (MOS)
— Advanced Micro Devices Inc. (AMD)
— Albemarle Corp. (ALB)
— Tesla Inc. (TSLA)
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