Top-rated S&P 500 per SA quant system as Q3 earnings near; tech remains a top pick

With the third-quarter earnings season around the corner, utilities (XLU), technology (XLK) and industrial (XLI) ETFs emerged as the highest-rated funds among the 11 S&P 500 (SP500) sectors, as per Seeking Alpha’s Quant metric.

The Quant Ratings system awards grades based on quantitative measures, like valuation, earnings growth, and recent stock performance. The highest possible score for any individual company is a 5.

Highest-ranked sectors

The Utilities Select Sector SPDR Fund (XLU), which holds a weightage of 2.52% on the S&P 500, took the top spot with a Buy rating and a score of 4.37 out of 5 as per SA’s Quant metric. It was closely followed by the Technology Select Sector SPDR Fund ETF (XLK), scoring 4.28 and a Buy rating. Tech stocks command the highest weightage of 31.69% on the index.

Among utilities, NRG Energy (NRG) and Southern Company (SO) got a Strong Buy rating, while Seagate Technology (STX), Microsoft (MSFT), F5 (FFIV), Dell Technologies (DELL) and Micron Technology (MU) were among the highest rated stocks in the technology sector.

The Industrial Select Sector SPDR Fund (XLI) took the third spot with a Quant score of 4.16 and a Buy rating. Northrop Grumman (NOC), Parker-Hannifin (PH), United Airlines (UAL), Allegion (ALLE) and Delta Air Lines (DAL) were among the highest rated firms in this sector.

Lowest-ranked sectors

The Materials Select Sector SPDR Fund ETF (XLB), Consumer Staples Select Sector SPDR Fund ETF (XLP) and Health Care Select Sector SPDR Fund ETF (XLV) represented the lowest ranked sectors as per SA’s Quant metric – all rated Hold.

Top-Rated S&P 500 Stocks Per SA Quant System:

• Berkshire Hathaway (BRK.B); SA Quant rating of 4.95
• Carnival Corporation (CCL); SA Quant rating of 4.92
• T-Mobile US (TMUS); SA Quant rating of 4.91
• Baker Hughes (BKR); SA Quant rating of 4.80
• Northrop Grumman (NOC); SA Quant rating of 4.80
• Universal Health Services (UHS); SA Quant rating of 4.79
• Newmont (NEM); SA Quant rating of 4.78
• Seagate Technology (STX); SA Quant rating of 4.77
• NRG Energy (NRG); SA Quant rating of 4.75
• VICI Properties (VICI); SA Quant rating of 4.65

Lowest-Rated S&P 500 Stocks Per SA Quant System:

• Halliburton (HAL); SA Quant rating of 2.82
• News Corporation (NWSA); SA Quant rating of 2.78
• Intel (INTC); SA Quant rating of 2.59
• Franklin Resources (BEN); SA Quant rating of 2.18
• Robert Half (RHI); SA Quant rating of 2.11
• Albemarle (ALB); SA Quant rating of 1.96
• Lululemon Athletica (LULU); SA Quant rating of 1.94
• Dollar Tree (DLTR); SA Quant rating of 1.61
• SBA Communications (SBAC); SA Quant rating of 1.28
• Moderna (MRNA); SA Quant rating of 1.26

Views on S&P 500 Q3 earnings:

Heading into the start of earnings season, eight of the eleven S&P 500 sectors are projected to report year-over-year earnings growth, led by the information technology (XLK), healthcare (XLV), and communication services (XLC) sectors, according to FactSet. Three sectors are projected to report year-over-year decline in earnings, led by the energy (XLE) sector.

Thanks to strong AI demand, the tech sector is projected to report the highest (year-over-year) earnings growth rate of all eleven sectors at 15.2%, with Nvidia (NVDA) ($0.74 vs. $0.40) likely to be the largest contributor to that growth.

Overall, the estimated earnings growth rate for the S&P 500 (SP500) is 4.2% for Q3, which, if realized, will mark the fifth straight quarter of year-over-year earnings growth for the index.