Most investors are probably familiar with the S&P500. This index includes approximately 500 publicly traded stocks, representing the largest companies in the US. The index also provides a glimpse into the overall state of the US economy and markets – which is why it is so closely monitored.
So far this year, the index is up about 10%. You can buy a mutual fund or exchange-traded fund (ETF) that tracks the index as a useful way to gain exposure to the broader market, but individual stocks are also worth considering to help you maximize your investment opportunities.
Carnival (NYSE: CCL), Chipotle Mexican Grill (NYSE:CMG)And DIY store (NYSE:HD) are three top picks to watch now. This is why.
The leading cruise operator
Carnival is the world’s largest cruise line, but is still dealing with the consequences of the shutdown early in the pandemic. Sales have returned to growth, with record first-quarter sales of $5.4 billion surpassing pre-pandemic figures. Demand is high, with record deposits of $7 billion in the first quarter of 2024 (ending February 29). Carnival entered the year at its highest booked positions ever, posting a longer curve at higher prices.
But profitability is still low. Carnival was once a reliable means of making a profit, and it is working to get there again. Net loss, based on generally accepted accounting principles (GAAP), fell by more than $500 million to $214 million in the first quarter, and adjusted net loss came in better than expected at $180 million.
The biggest problem currently hanging over us is the heavy debt burden. It piled on debt to stay open while not bringing in revenue, and while it has been rigorous about paying back efficiently, it still has more than $28 billion in long-term debt. In the first quarter, the company paid off $1 billion in top-interest notes while increasing a $400 credit facility to maintain a healthy financial position. But investors will be cautious about Carnival stock until debt levels are at safer levels.
Carnival shares made a big comeback last year as business recovered, but they are down 21% this year. At its current price, it trades at a dirt-cheap price-to-sales ratio (P/S) of 0.9. It may go sideways before going back up, but in the long run it should become a market-beating stock again. This is an excellent entry point that you won’t want to miss.
The favorite fast-casual chain
Chipotle continues to dazzle diners with its healthy, fresh fare, while pleasing investors with its sales growth and profit generation. It consistently reports rising revenue, comparable sales and earnings per share (EPS) – all despite economic volatility – and management continues to see tremendous expansion opportunities.
In the most recent update, for the first quarter of 2024, revenue increased 14% year-over-year, driven by a 7% increase in comparable sales. Earnings rose from $10.50 to $13.01 per share. The restaurant chain opened 47 new stores this quarter and plans to open a total of about 300 for the year.
Chipotle is the only stock on this list to beat the market so far this year, rising 37%. There are several reasons: overall growth and resilience; quarterly performance; and a third element unique to our times: a 50-to-1 stock split, one of the largest stock splits ever on the market. That received a lot of attention and caused the share price to rise even higher.
So why is it a crying purchase now? Because it will likely continue to rise, and the sooner you get in, the longer your money can work for you. Chipotle’s stock isn’t cheap, trading at a price-to-earnings (P/E) ratio of 67. But believe it or not, that’s lower than its five-year average of 77. The stock is trading at a premium because the company is so reliable for growth.
The largest home improvement chain
Home Depot is the largest home improvement chain in the world, with more than 2,300 stores in North America. It has a robust omnichannel structure, has invested heavily in creating a strong digital network and has recently made a number of key acquisitions that are generating new opportunities.
However, the country is struggling in the inflationary environment. There are several ways this is affected. The real estate market is under pressure due to sky-high mortgage rates, and homeowners are not moving. That means fewer home improvement projects. Even people who are buying are holding off on making big purchases, and some consumers are putting off non-essential repairs and purchases altogether.
Revenue fell 2.3% year over year in the first quarter of fiscal 2024 (ended April 28), with comps down 2.8% and earnings per share falling from $3.92 to $3.83. Good news was that digital sales increased by 3.3% last year.
Comparable sales decreased by 1.5% compared to last year; the average ticket decreased by 1.3%; and comparable transactions over $1,000 fell 6.5%. This indicates that the drop in Comps had more to do with price than traffic.
Shares of Home Depot are down 6% this year. This brings the price/earnings ratio back to the five-year average of 21.8. When sales start growing again, you can expect Home Depot stock to grow again and deliver market-losing results.
Do you need to invest $1,000 in Carnival Corp. now? to invest?
Consider the following before buying shares in Carnival Corp. buys:
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Home Depot. The Motley Fool recommends Carnival Corp. On. The Motley Fool has a disclosure policy.
3 S&P 500 Stocks to Buy Screaming Right Now was originally published by The Motley Fool
