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Buy 5 S&P 500 Laggards of Q1 Likely to Gather Pace in Q2

U.S. stock markets witnessed an impressive first quarter of 2024 after an astonishing 2023. Wall Street’s bull run got an added boost this year, to the surprise of a large section of financial pandits, who indiscriminately warned of overvaluation.

In 2023, Wall Street’s benchmark the S&P 500 Index jumped 23.9%. After that, in first-quarter 2024, the S&P 500 rallied 10.2%, marking its best first-quarter performance since 2019. In the last quarter, the broad-market index recorded 22 new all-time highs. The index’s most recent all-time high of 5,264.85 was posted on Mar 28. Thereafter, the index retreated 1.1%.

Despite a dream run of the benchmark, a few S&P 500 components lagged the index to a big extent. A handful of those stocks currently carry a favorable Zacks Rank. These stocks are likely to regain momentum in the second quarter as steadily dwindling inflation, strong fundamentals of the U.S. economy and expectations of interest rate cut this year are likely to help reviving their businesses.

Positive Catalysts

The Department of Commerce reported that the U.S. economy grew at a clip of 3.4% in fourth-quarter 2023, well above the initial consensus estimate of 2%. The U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%. On Apr 4, the Atlanta Fed GDPNow tracker forecast a 2.5% growth rate for first-quarter 2024, indicating, no chance of a near-term recession.

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The CME FedWatch currently shows a 53% probability of the first cut of the existing Fed funds rate in the June FOMC meeting. On Apr 3, in a speech at Stanford University, Fed Chairman Jerome Powell reiterated that the central bank will start reducing the Fed fund rate at some point of time this year. However, he also cautioned that the time of the rate cut will depend on upcoming economic data, especially the inflation data.

Our Top Picks

We have narrowed our search to five S&P 500 stocks that lagged the index in the first quarter. However, these stocks have strong potential for 2024. They have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Automatic Data Processing Inc. ADP continues to enjoy a dominant position in the human capital management market through strategic buyouts like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company.

ADP is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. Further, ADP continues to innovate, improve operations and invest in its transformation efforts. ADP has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure.

Automatic Data Processing has an expected revenue and earnings growth rate of 6.3% and 11.1%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.

Welltower Inc. WELL owns a well-diversified portfolio of healthcare real estate assets in the key markets of the United States, Canada and the U.K. Given an aging population and an expected rise in senior citizens’ healthcare expenditure, WELL’s seniors housing operating portfolio is well-positioned to capitalize on this positive trend.

The outpatient medical segment is expected to benefit from the favorable outpatient visit trends in the near term. WELL’s strategic restructuring initiatives have enabled it to attract operators and improve its cashflows. WELL enjoys solid balance sheet strength and its capital-recycling efforts are encouraging.

Welltower has an expected revenue and earnings growth rate of 10.6% and 10.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.

TE Connectivity Ltd. TEL is benefiting from the well-performing transportation solutions segment. The growing proliferation of EVs and strong content trends in electronification are driving automotive sales of TEL. Further, improvements in commercial aerospace and solid momentum across renewable applications are aiding the performance of industrial solutions.

Additionally, growing momentum across interventional procedures is aiding medical sales of TEL. We believe the strength in transportation and industrial solutions is likely to remain positive. Solid free cash flow generating ability boosts TEL’s prospects.

TE Connectivity has an expected revenue and earnings growth rate of 0.4% and 12.3%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days.

Host Hotels & Resorts Inc. HST is well-poised to benefit from its portfolio of luxury and upper-upscale hotels in the top U.S. markets and the lucrative Sunbelt region, having strong demand drivers. HST is expected to witness a stable operating environment on the back of continuous improvement in group business, a gradual recovery in business transient and steady demand for leisure activities.

This is likely to support HST’s revenue per available room (RevPAR) growth. We project comparable RevPAR to rise 4.2% year over year in 2024. An aggressive capital-recycling program is expected to improve HST’s portfolio quality over time. A healthy balance sheet will likely pave the way to capitalize on long-term growth opportunities.

Host Hotels & Resorts has an expected revenue and earnings growth rate of 5.3% and 2.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the last 30 days.

Jack Henry & Associates Inc. JKHY is benefiting from growing services and support and processing revenues. The rise in data processing and hosting fees is contributing well to JKHY’s top line. Strength in its card processing solutions, owing to expanding transaction volumes and growing payment processing and digital revenues are major positives.

Additionally, strong momentum across JKHY’s lending platform is a tailwind. Strength across the Core, Payments, Complementary and Corporate segments is expected to benefit its financial performance in the days ahead. Moreover, JKHY’s growing cost efficiency is expected to boost its revenues in the upcoming period.

Jack Henry & Associates has an expected revenue and earnings growth rate of 6.9% and 21.8%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 60 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report

Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report

TE Connectivity Ltd. (TEL) : Free Stock Analysis Report

Jack Henry & Associates, Inc. (JKHY) : Free Stock Analysis Report

Welltower Inc. (WELL) : Free Stock Analysis Report

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Zacks Investment Research