Analysts still like some S&P 500 stocks that held up this year. And ETFs offer a way to scoop up some of these resilient darlings.
Analysts expect 11 S&P 500 stocks that are up this year, including energy plays EQT, communications services firm Activision Blizzard and communications firm T-Mobile US, to rise another 17% or more in the next 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
But what's interesting about these favorites is that they've gained in a year that the S&P 500 itself has fallen 14%. Given the volatility all year, it's natural for investors to want to spread their bets a little. Even Warren Buffett has more losing stocks this year than winners. ETFs can help.
"ETFs provide investors with significant diversification benefits relative to owning individual stocks as finding consensus on what companies are poised to benefit the most within a sector or style can be a challenge," said Todd Rosenbluth, head of research at VettaFi.
Follow Through In S&P 500 Energy
Just two sectors in the S&P 500 are up this year: energy and consumer staples. The Energy Select Sector SPDR ETF is up more than 64% this year. That tops the No. 2 best sector, Consumer Staples Select Sector SPDR, which is up roughly 0.1%.
Yet analysts still see a bright side to many energy plays. EQT, a Pittsburgh-based natural gas production company, is expected to see its shares rise more than 44% in the next 12 months. That's the largest expected rise by any S&P 500 stock that's up this year. Interestingly, the shares have already nearly doubled in value in 2022 so far. And the stock was the best in the S&P 500 in two months this year.
But it's not the only energy play analysts like. Half of analysts' top 12 favorite stocks in the next 12 months up this year are energy stocks. Analysts are calling for 27% upside in Coterra Energy and 24% upside in Targa Resources.
Parsing Energy Winners
Picking individual winners, though, in the energy sector might be more than some ETF investors want to deal with. Coterra Energy, Targa and EQT are all in the Energy Select Sector SPDR ETF, but at relatively small weightings of 1.5%, 0.9% and 0.9%, respectively. EQT has the smallest weight in the ETF of any stock.
Another option is the Invesco S&P 500 Equal Weight Energy ETF, which holds the same amount of all S&P 500 energy companies. All those stocks have a nearly 4% weighting in this ETF.
Just know equal weighting doesn't always add diversification. Analysts like T-Mobile US, too. They're calling for the wireless telecom stock, already up 31% this year to rise another 18%. But, its 4.6% weight in the Communication Services Select Sector is the same as its weight in Invesco S&P 500 Equal Weight Communication Services.
Betting On Gaming
Another S&P 500 stock that's up this year, and analyst see more than 24% upside, is gaming giant Activision Blizzard. Shares are up more than 11% this year already on the pending $68 billion buyout by Microsoft.
Seeing upside in the stock isn't much of a stretch. At its current valuation of $58 billion, that leaves plenty of money on the table if the deal is done. Regulators, though, continue to question the deal, putting some doubt into it.
That's where ETFs can diversify the bet. Activision Blizzard is a 6.5% weighting in the VanEck Video Gaming and eSports ETF. This ETF exposes you to the entire video game industry. But if you're more interested in the shares' discount to the buyout price, you can diversify that bet, too. The IQ Merger Arbitrage ETF owns shares of 41 companies with pending buyouts. Activision Blizzard holds a 6.5% weight in the ETF.
That way no matter what happens, you're spreading your bets.
Analysts' Favorite Resilient Stocks
S&P 500 stocks up this year with highest 12 month upside to analysts' targets
| Company | Symbol | YTD | Implied upside | Sector |
|---|---|---|---|---|
| EQT | 94.5% | 44.4% | Energy | |
| Coterra Energy | 46.9 | 27.2 | Energy | |
| Activision Blizzard | 11.2 | 24.5 | Communication Services | |
| Targa Resources | 42.4 | 24.1 | Energy | |
| Diamondback Energy | 37.2 | 22.6 | Energy | |
| Mosaic | 30.6 | 20.6 | Materials | |
| Pioneer Natural Resources | 29.8 | 20.4 | Energy | |
| L3Harris Technologies | 6.5 | 20.2 | Industrials | |
| United Airlines | 0.9 | 19.6 | Industrials | |
| T-Mobile US | 30.6 | 17.5 | Communication Services | |
| Devon Energy | 55.6 | 17.5 | Energy |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
