Major indices continue to climb Despite ongoing concerns over sticky inflation, high interest rates and geopolitical tensions. Many shares defy the traditional “sell in May and go away” adage. This trend leaves investors wondering which stocks to buy to ride the ongoing surge in equities.
Studies show that the S&P 500 Index has enjoyed 27 bull markets between 1928 and 2023, with an average gain of nearly 115% over an average period of 2.7 years. From 1987 to 2000, the longest bull market achieved an impressive gain of 582%. In June 2023, the S&P 500 re-entered bull market territory, displaying strong momentum. Research provider CFRA recently raised its 12-month target to over 5,600, citing optimistic profit growth expectations.
Although concerns persist about high valuations in the technology sector and the potential volatility surrounding the presidential election in November, market sentiment remains positive. Anticipated interest rate cuts by the Federal Reserve and earnings growth could create a favorable environment for further gains. Let’s explore three of the best stocks to buy, poised to benefit from the current market momentum.
Eli Lilly (LLY)
Pharma giant Eli Lilly (NYSE:LLY) provides medications across a wide range of therapeutic areas, including diabetes, cancer and chronic pain. Its strong product portfolio, consistent revenue growth, and potential for future breakthroughs make LLY stock the first name on our stock list.
For the first quarter of 2024, Eli Lilly reported a remarkable 26% increase in revenue, primarily driven by the successful launch of new products like Mounjaro and Zepbound. Wall Street has been impressed with the pharma company’s ability to innovate and effectively bring new products to market.
Meanwhile, its gross margin also saw an impressive rise from 78.4% in the first quarter of 2023 to 82.5% in the first quarter of this year. Eli Lilly benefited from higher prices and an improved product mix, underscoring the company’s operational efficiency and pricing power. Operating income in the same period grew by 63%, and earnings per share increased by 59%. Looking ahead, Eli Lilly has raised its full-year 2024 revenue guidance to between $42.4 billion and $43.6 billion. The company also anticipates further margin expansion.
As a result, LLY stock has advanced 30% year-to-date (YTD), hovering slightly below all-time highs. Yet, the shares are expensive, trading at 56 times forward earnings and 19 times sales. Nonetheless, Wall Street is expecting further gains from the pharma stock, as the 12-month average price stands at $877.50, presenting an upside potential of 15%.
Fabrinet (FN)
Next on our list of stocks to buy is Fabrinet (NYSE:FN). Its equipment enables the transmission of massive data volumes at high speeds. With data demand constantly rising and a wide range of services ranging from optical packaging to precision manufacturing, Fabrinet deserves your attention as a long-term investment.
Analysts point out that Fabrinet has demonstrated robust financial health with a market cap of $8.4 billion. In early May, management released financial results for the third quarter of fiscal year 2024. Exceeding guidance, quarterly revenue was $731.5 million, compared to $665.3 million for the same period 12 months ago. Adjusted net income per diluted share was $2.39, compared to $1.94 for the year-ago quarter.
Wall Street was pleased about the growth in optical communications revenues, particularly from datacom revenue, which grew 150% YOY. Management is optimistic about its position in the high data rate datacom market. Fabrinet’s operating and net profit margins currently stand at 9.6 and 9.9%, respectively. In other words, management has successfully navigated the competitive manufacturing landscape to maintain profitability.
Since the start of the year, FN stock has returned 22%, rallying significantly after announcing better-than-expected financial results. Meanwhile, the shares are trading at 26.2 times forward earnings and 3.1 times sales. Given the extent of the recent rally in Fabrinet shares, potential investors may consider waiting for a pullback towards the $220 level. Fabrinet will likely continue its growth trajectory in future quarters, making it a compelling stock to buy within the tech manufacturing sector.
Vanguard Growth ETF (VUG)
Large-cap growth stocks typically thrive in rapidly expanding industries like technology and biotech. Known for high growth rates and valuations, these companies are expected to outpace other established stocks. Such growth shares may offer a blend of stability and significant long-term potential, making them an important part of many portfolios.
Therefore, the Vanguard Growth ETF is next on our list of stocks to buy (NYSEARCA:VUG). This fund allows investors to replicate the performance of leading large-cap U.S. growth stocks. Launched in January 2004, the ETF offers broad exposure to about 200 companies.
Over half of VUG’s holdings are in technology stocks (56%), followed by consumer discretionary (19%), industrials (9%) and healthcare (8%) sectors. The top 10 holdings collectively account for over half of the fund’s net assets of $226 billion. Among the top names are Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META) and Visa (NYSE:V) and others.
Since January, with a gain of over 11%, VUG has outperformed many individual stocks and the benchmark indices. By comparison, the Nasdaq 100 index has advanced 9%, the S&P 500 10%, and the Dow Jones Industrial Average (DJIA) 5%. Currently, the VUG fund trades at 38 times trailing earnings and 10 times book value. With a competitive expense ratio of 0.04% and a modest 0.5% dividend yield, VUG remains an appealing option for investors seeking exposure to large-cap growth stocks.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
