The Top 3 S&P Performers May Not Be What You Think

We’re accustomed to hearing a lot about the biggest domestic stocks, those most heavily weighted in the S&P 500, but not so much top performers like L Brands NYSE: LB, The Gap NYSE: GPS and Diamondback Energy NASDAQ: FANG.

There’s actually a good reason why the most heavily weighted stocks in the S&P 500, those with the largest market cap, get attention: They have the power to move the indexes, whereas stocks with smaller market caps can’t do that, at least not individually. 

While the largest component in the S&P 500, Apple NASDAQ: AAPL, has been correcting and notched a return of only 0.47% year-to-date, some smaller components are having stellar years. Apple constitutes 6% of the index.

L Brands has been on a spectacular run, advancing 72.41% so far this year. 

The company, once known as Limited Brands, owns Victoria's Secret and Bath & Body Works. It has a market capitalization of $18.14 billion. It accounts for 0.043% of the S&P 500. 

Earnings grew 61% in the most recent quarter, to $3.03 per share, beating estimates. Revenue of $4.82 billion fell short of analysts’ forecasts, although Wall Street cheered the company’s raised guidance. 

L Brands said it now expects to earn between $0.85 and $1.00 a share, up from previous guidance of $0.55 to $0.65. 

Although revenue missed forecasts, it still grew 2% year-over year. 

When it lifted guidance, the company cited a rise in sales to consumers spending stimulus checks, as well as more relaxed Covid-19 restrictions. 

Despite a pullback this week, the stock is still extended from a buy point. Shares are trading around $65. The stock may be due for a correction soon, which would flush out profit-takers and set the stage for new money to support the stock at a lower entry price.

Fellow clothing retailer Gap is also a leader within the S&P 500, with a year-to-date performance of 57.40%. Shares are trading around $32 as they work to overcome resistance at $33.24. 

The company’s brands are well known among consumers. In its quarterly earnings call in March, the company cited Old Navy and Athleta as growing 5% and 29%, respectively, in the fourth quarter. Combined, they represented 63% of company sales in 2020, and the company hopes that number will reach 70% by the end of 2023.

Like many other companies, this one is tilting more toward online sales. Last month, it said it would invest $83 million to expand its distribution facility in Gallatin, Tennessee, to better fulfill online orders. That expansion will create 600 new jobs. 

Analysts see the company’s earnings rebounding this year after last year’s loss of $2.12 per share, to $1.32 per share. 

As the recent price performance shows, Investors believe in the comeback story. The stock jumped out of a cup-with-handle base in more than double average volume in early March, following the earnings report. 

It’s now extended beyond that base, trading between $30 and $32 in a tight weekly range, which could be a good set-up for a further rally. Areas of tight trade mean institutional investors are holding shares, showing their conviction. 

The third biggest S&P 500 gainer this year is Diamondback Energy, an oil and gas explorer and producer. 

The company recently updated its full-year production guidance, after completing its $2.2 billion acquisition of oil producer QEP Resources, which closed in March. 

The stock returned 23.18% over the past three months, and 54.28% year-to-date. That performance follows a dismal price performance in 2020, as the energy industry as a whole suffered slowdowns as demand fell due to Covid-19 lockdowns. 

Not only is the price up, but in February, the company increased its annual dividend by 6.7% to $1.60 per share. 

Diamondback reports its first quarter on May 3. Analysts are eyeing earnings per share of $1.81 per share on revenue of $877.61 million. That would be a top-line decline but a bottom-line increase. 

Both sales and earnings growth slowed in recent quarters, but analysts expect full-year earnings to come in at $7.70 per share, up 153%.

The stock is currently consolidating in a first-stage base, which could be a bullish indicator if it can clear that area in heavy volume. A catalyst for a move could be that earnings report on May 3, if there is better-than-expected news.