2 Best Performing Stocks on the S&P 500 Are Breaking Out Now
Although these last two weeks have been painful for investors, as the S&P 500 pulled back by ~7% in a rather short time, it is likely setting up what could be a powerful end of year rally. Additionally, if you take a look at a technical chart of the Nasdaq 100 index, we can see that on Wednesday, the market made a big reversal right at the bottom of the consolidation. This leads me to believe the sell off is at or near an end.
Furthermore, the two strongest stocks in the S&P 500 YTD, Nvidia NVDA and Meta Platforms META, have built out compelling technical chart patterns to trade from. And although both of these stocks have rallied more than 100% this year, they still trade below their historical median valuations, and boast top Zacks Ranks.
If you are a trader or investor looking to add exposure to your portfolio, continue reading and I will show you two high probability setups to consider.
Nvidia has been this year’s stock to own as it cemented itself as the producer of the primary infrastructure for technology companies entering the Artificial Intelligence boom. With its GPUs and data centers years ahead of the other semiconductor companies, Nvidia is likely to maintain its dominant positions for some time.
Analysts have initiated some massive revisions higher to Nvidia’s earnings estimates, giving it a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings estimates have been revised higher by 50% over the last two months and are forecast to climb 472% YoY to $3.32 per share. FY23 earnings estimates have been increased by 40% and are projected to grow 225% YoY to $10.67 per share.
In FY23 and FY24 sales are expected to grow 81% and 44% YoY respectively, while EPS are forecast to grow 13.5% annually over the next 3-5 years.
Over the last month, NVDA stock has been building out this bullish descending wedge pattern and on Wednesday, price cleared the upper bound and signaled a breakout. So long as the stock doesn’t reverse back into the range, or trade below support at $400, there should be a nice rally over the next few weeks.
Because of the massive rise in earnings estimates for NVDA, its forward earnings multiple has dropped considerably. It is trading at a one year forward earnings multiple of 44.3x, which is in line with the industry average and below it five-year median of 55x.
Meta Platforms has been a close second in the race for top performing stock of 2023. However, rather than push new all-time highs META is coming back from its brutal -80% correction in 2022 and still sits below its high price.
Nonetheless, META stock enjoys a discounted valuation, upward trending earnings revisions, and a convincing technical setup, even after its resurrection.
Meta Platforms has a Zacks Rank #2 (Buy) rating, indicating analysts have been raising the company’s earnings expectations. Current quarter earnings estimates have been revised higher by 2.6% and are expected to grow 115% YoY to $3.35 per share. FY23 earnings estimates have increased by 2.6% over the last two months and are forecast to grow 34.5% YoY to $13.22.
EPS are expected to climb an incredible 23.15% annually over the next 3-5 years while sales are expected to grow in the low teens this year and next.
Meta Platforms stock has been forming this bullish pennant pattern over the last two months. If the stock can trade above the $307 level, it will signal a breakout and should commence a year end rally. Alternatively, if the stock loses support and trades below $295, investors may want to wait for another setup.
Something to note is the candle that formed on Wednesday. With its huge wick indicating an intraday reversal, it shows that the weak hands have been shaken out of the stock, which should give the stock even more upside energy as traders chase it higher.
META is trading at a one year forward earnings multiple of 22.5x, which is below the industry average of 28.7x and below its 10-year median of 27.4x. Even after more than doubling in price this year, with EPS expected to grow more than 20% annually, I think META is still one of the best stocks on the market.
Approaching the year’s end, I find myself struggling to discern any significant indicators that would hinder further upward momentum in the closing months. This final quarter is typically characterized by seasonal strength, and presently, there are minimal economic constraints impeding the vigor of the economy. Historically, markets that start the year with strength tend to maintain this robustness through to the year’s end and thus I remain bullish, with a focus on the leading stocks.
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
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