Three prominent S&P 500 companies currently presenting enticing investment opportunities.
Many investors are likely acquainted with the S&P 500. This index consists of around 500 publicly traded stocks, representing the biggest companies in the U.S. It offers a glimpse into the overall health of U.S. businesses, the economy, and markets, which is why it's so closely observed.
So far this year, the index has climbed approximately 10%. You can invest in a mutual fund or exchange-traded fund (ETF) that mirrors the index as a straightforward method to gain exposure to the broader market. However, individual stocks are worth considering as well to boost your investment prospects.
Carnival (CCL 6.43%), Chipotle Mexican Grill (CMG 0.21%), and Home Depot (HD 1.97%) are three standout picks right now. Let me explain why.
The leading cruise operator
Carnival is the world's leading cruise company, but it's still dealing with fallout from early pandemic shutdowns. Revenue is back up, and first-quarter sales of $5.4 billion surpassed pre-pandemic figures. Demand is high, with record Q1 deposits of $7 billion in fiscal 2024's first quarter (ended Feb. 29). Carnival started the year in its best-ever booked positions, and it's been booking out a longer curve at higher prices.
However, profits are still down. Carnival was once known for its profit generation, and it's working to get back there. Its net loss, based on generally accepted accounting principles (GAAP), declined by more than $500 million to $214 million in Q1, and the adjusted net loss came in better than expected at $180 million.
The main issue holding it back right now is its considerable debt load. It accumulated debt to stay operational during the revenue drought, and while it's been diligent in managing to pay back efficiently, it still carries over $28 billion in long-term debt. In Q1, it redeemed $1 billion of its highest-interest notes while increasing a $400 credit facility to maintain a sound financial position. But investors will remain cautious about Carnival stock until the debt is more secure.
Carnival saw a significant rebound last year as its business picked up, but it's down 21% this year. At its current price, it trades at a meager price-to-sales ratio (P/S) of 0.9. It might move sideways before making a comeback, but in the long term, it should return to being a top-performing stock. This represents an attractive entry point you don't want to miss.
The favorite fast-casual chain
Chipotle continues to impress diners with its nutritious, fresh food while also delighting investors with its sales growth and profitability. It consistently reports rising revenue, comparable sales, and earnings per share (EPS) -- even in volatile economic times -- and management sees tremendous expansion potential.
In the most recent update, for Q1 2024, revenue increased 14% year over year, driven by a 7% increase in comparable sales. Earnings increased from $10.50 to $13.01 per share. The restaurant chain opened 47 new stores in the quarter and plans to open around 300 new locations for the full year.
Chipotle is the only stock on this list that's outperforming the market so far this year, and it's up 37%. There are several reasons: overall growth and resilience; strong quarterly performance; and a novel third factor that emerged during this period -- a 50-for-1 stock split, one of the biggest-ever stock splits on the market. This gained attention and boosted the stock price even further.
So why is it an excellent buy right now? Because it's likely to keep rising, and the sooner you get in, the longer your money can generate returns. Chipotle stock isn't cheap, trading at a price-to-earnings ratio (P/E) of 67. But surprisingly, that's less than its 5-year average of 77. The shares trade at a premium because the company is so reliable for growth.
The largest home-improvement chain
Home Depot is the world's largest home-improvement chain, with over 2,300 stores in North America. It boasts a robust omnichannel structure, has invested heavily in digital expansion, and recently made strategic acquisitions that bring new growth opportunities.
However, it's struggling in the inflationary environment. The real estate market is under pressure due to high mortgage rates, and homeowners aren't moving as much. That means fewer home improvement projects. Even homebuyers are holding off on major purchases, and some buyers are putting off non-essential repairs and purchases altogether.
Revenue decreased 2.3% year over year in fiscal 2024's first quarter (ended April 28) with comps falling 2.8% and EPS dropping from $3.92 to $3.83. Some positive news was that digital sales increased 3.3% over the previous year.
Comparable sales dropped 1.5% from the previous year; the average ticket declined 1.3%; and comparable transactions over $1,000 fell 6.5%. This suggests that the comps' decrease was more about price than traffic.
Home Depot stock has fallen 6% this year. This brings its P/E ratio down to its 5-year average of 21.8. When sales start growing again, expect Home Depot stock to grow again, and deliver top-performing results.
Investing in a mutual fund or ETF that mirrors the S&P 500 can provide a simple method for gaining exposure to the broader market, as many investors may find this index helpful in assessing the overall health of U.S. businesses and markets. With Carnival's profits still down and a substantial debt load, investors might want to exercise caution before investing in its stock, despite its potential for long-term growth and attractive entry point.
