7 S&P 500 Stocks to Buy to Keep the Bull Market Running
The S&P 500 is within striking distance of entering official bull market territory. To qualify, the index would need to rise more than 20% from its previous low and hit a new all-time high. The popular benchmark crossed the first threshold and needs to close above 4,796.56 to achieve the second. It’s within about 75 points of making it and there’s good reason to think it could happen soon.
Bear markets are relatively short-term events lasting about 15 months on average. Bull markets, on the other hand, are measured in years and typically run for around 36 months. The S&P 500 bottomed out on October 12, 2022 and the broad-based index has largely been running higher since.
Now that we’re this close to hitting the mark, here are seven S&P 500 stocks that can keep this bull market run going.
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Apple (AAPL)
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Apple (NASDAQ:AAPL) is not only the world’s largest technology company but with a $2.8 trillion market capitalization, it is the largest company period. It has a 7.4% weight in the S&P 500. Yet shares are down 8% since the middle of December as slowing sales and profit growth weighed on performance.
The centerpiece of its business is the iPhone, which accounts for 52% of total sales. Revenue hit a new record in the fourth quarter but growth was a paltry 2.8%. For the full year, revenue was actually down 2.4%. All other Apple products such as Macs, iPads and wearables, were also lower from the year-ago period.
So why will Apple keep growing? Services continue to light up sales growth. Revenue jumped 16% in the fourth quarter, an acceleration from previous periods. Although it’s about half the size of the iPhone segment, it’s going to eventually become Apple’s biggest business. From the App Store to Apple Music, Apple Pay to iCloud, Apple is pulling in money left and right. It’s also hugely profitable.
Where product gross margins were north of 32%, service gross margins were 70.9%, up 40 basis points sequentially. Apple’s massive installed base of products ensures services revenue will keep growing. There will be hiccups in the tech giant’s performance from time to time but the overall trend is up. Apple is a key driver for keeping this bull market going.
Alphabet (GOOG)(GOOGL)
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Best known as the parent company of search engine Google, Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is also the world’s largest online advertising platform. Google Search, YouTube, Gmail, Google Maps, Chrome, Android, Google Cloud, and other products and services all contribute to propping up the ad business. Alphabet generated $59.6 billion in ad revenue in just the third quarter of 2023 or 78% of the total.
Search naturally is the primary driver of revenue, representing 74% of total sales. There had been concern that companies dependent on online advertising would get hit by a recession as businesses reined in spending. While that’s likely true for smaller outfits, businesses also know that if they want to reach consumers they need to be on Alphabet’s platforms. It is facing competition from other ad outlets, including Meta Platform‘s (NASDAQ:META) Facebook, but Google is still the dominant player in the space. It still owns 85% of the global search market.
Yet the future for Alphabet is much more than search. Google Cloud is the third largest cloud services platform, Android has a 70% share of the mobile market, Gmail is the de facto email service, and so forth. Alphabet also promises to be a leader in artificial intelligence (AI). It claims its generative AI model Gemini is the “largest, most capable and most general” AI system. The Pixel 8 Pro smartphone is the first smartphone to be powered by AI. Expect Alphabet to be front and center in the bull market.
Paycom Software (PAYC)
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A cloud-based payroll company, Paycom Software (NASDAQ:PAYC) provides payroll, talent acquisition, time and labor management, and other business solutions. But after racing higher across the first half of 2023, Paycom stock fell off the table. From peak to trough it lost over 60% of its value in just three months. Now it’s climbing higher once more.
Paycom’s Beti software is a paradigm shift in how payroll services are performed. Employees themselves do their own payroll helping to eliminate errors. It’s proving so popular that two-thirds of Paycom’s customers have switched to Beti. Third-quarter revenue was up 22% year over year as customers realized they were saving money from “perfect” payrolls.
The one problem is that businesses are becoming so efficient and proficient at using Beti they are eliminating certain billable items. That’s hurting Payocm’s growth rate at the moment, and led to disappointing guidance for the rest of 2023 and 2024. However, it should make for satisfied customers who return again and again in the future.
Paycom’s financial foundation remains solid and the modest dividend it initiated last year remains secure. There is plenty of room for future growth from the payout. Particularly as the market picks up steam, the cloud-based payroll company should thrive.
Fortinet (FTNT)
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Cybersecurity specialist Fortinet (NASDAQ:FTNT) enjoys the peace of mind that comes from knowing your business will always be needed. Data breaches were expected to hit a record last year and will likely continue being a menace going forward. Fortinet’s enterprise-class, service-provider and government-organization clients can also be at ease with its network security, cloud security, and endpoint security services. Its Security Fabric platform for example, enables customers to achieve higher levels of security, performance, and efficiency while reducing complexity and costs.
AI is also expected to play a large role in protecting against cyber threats. Fortinet invested heavily in AI and machine learning capabilities to enhance its threat detection, prevention, and response solutions. It also staked out a leadership position in firewalls and software-defined wide area networks, or SD-WANs, that connect data centers to branches and the cloud.
As more customers shift their data and operations to the cloud, the need for security increases, not lessens. By expanding its product portfolio to meet customer demand, Fortinet can further increase its market share while revenue and profits grow.
Royal Caribbean Cruises (RCL)
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After nearly capsizing four years ago in the wake of the pandemic, Royal Caribbean Cruises (NYSE:RCL) is back sailing the high seas. Shares more than doubled over the past year, far outstripping the returns of the index. Revenue is at record levels and the cruise line operator boasts occupancy rates comparable to pre-Covid levels despite prices rising.
Despite this, Royal Caribbean trades at just 13 times earnings estimates and just 13 times free cash flow. It is more heavily indebted than it was before the global health crisis four years ago, but that was necessary to stay afloat. It is back to earning plenty of profit and generating cash flow to pay that down.
That’s not to say it might now encounter a rogue wave or two. The conflict in Israel will likely cause a small hit to its performance. The cruise line noted 1.5% of its fourth quarter capacity was to Israel. However, many of those voyages have been diverted elsewhere. The recent Red Sea attacks by Yemeni militants attacking ships could make travel there too dangerous as well. Commercial ships are already rerouting from the area. Cruise ports of call in Egypt, Jordan and Saudi Arabia may be off-limits. Even so, Royal Caribbean is still going full steam ahead and should keep sailing on.
Palo Alto Networks (PANW)
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Palo Alto Networks (NASDAQ:PANW) is another cybersecurity specialist performing even better than Fortinet. Its stock is up 115% in the last 12 months. The industry is expected to grow from $156 billion in 2022 to $425 billion in 2030 for a near-14% compounded annual growth rate.
The cybersecurity leader’s fiscal year 2023 revenue soared 25% to $6.9 billion and turned in a $440 million profit. That’s a complete reversal from the year-ago period when it suffered losses of $267 million. It’s continuing that strong growth in fiscal 2024 with fourth quarter revenue up 20% while profits grew nearly 10-fold. Chairman and CEO Nikesh Arora says the performance was driven by “An unprecedented level of attacks is fueling strong demand in the cybersecurity market.”
It is also investing in AI-powered solutions. Its Cortex platform now has 5,300 customers, a 25% increase in the quarter. It was also the only platform to achieve a 100% detection and protection in comprehensive industry evaluations called MITRE 5.
Because like death and taxes, cybercrime will always be with us, Palo Alto Networks will keep driving the bull market forward.
Moderna (MRNA)
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Moderna (NASDAQ:MRNA) is currently best known for its Spikevax Covid therapeutic. But the biotech also delivers treatments for various other diseases, such as cancer and rare genetic disorders. While Covid shots are a much harder sell these days, Moderna has a 48% share of the U.S. market. It did have $6.7 billion worth of Covid product sales last year, however. Now it is preparing to launch another product, a respiratory syncytial virus (RSV) vaccine. There are nine other late-stage programs in development.
That gives Moderna the confidence to predict it will return to organic sales growth in 2025. It also expects to break even in 2026. It says product launches and disciplined investment will help sales steadily grow going forward as it launches as many as 15 new products over the next five years. One of the more promising developments is its personalized cancer vaccine mRNA-4157, which it is collaborating with Merck (NYSE:MRK) on.
Moderna’s stock was a laggard in 2023 as Covid-related Spikevax sales collapsed 71%. As that’s it’s only commercial product on the market it’s not surprising the stock tumbled hard. Yet its RSV vaccine is moving towards commercialization in early 2024 and its other therapies are progressing through trials. The market is warming up to the stock once again. Expect Moderna to keep growing as more products hit the market.
On the date of publication, Rich Duprey did not hold (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.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
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