Despite the sleepy summer, when trading is generally slower, second-quarter earnings season delivered robust results overall.
More than 70% of S&P 500 companies managed to beat earnings expectations — above the five-year average. Still, there were two sectors that stood as carrying the weight: health care and technology.
The technology and health-care sectors were the best-performing sectors in term of stock prices over the last month. For the month of July, the technology sector gained 8% and health care climbed 6%. However, there are still some stocks in these sectors worth owning.
The top tech stocks that beat earnings estimates included Facebook (NASDAQ: FB) and Google (NASDAQ: GOOG). These and other tech stocks managed to outperform thanks to the shift toward mobile technology and by embracing cloud computing.
These tech companies are thriving as consumers become more dependent on smartphones. Consumers are also spending on drugs and consumer staples like shampoo and toothpaste. With all that in mind, here’s the top two stocks to own in the best-earning sectors:
Top Stock Picks: Technology
The tech sector’s strength is illustrated by companies like Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN); each has managed to beat earnings thanks to strong mobile, cloud and advertising revenues.
But it’s Google that is the top stock capitalizing on all three area. The company has a massive position in the search market, but is also making big bets on high-growth tech areas like driverless cars and virtual reality.
Google posted a very solid second-quarter profit. Its operating income was 7% above analysts estimates. With this, shares are near all-time highs. Google’s cash hoard is up to $75 billion, which could mean Google is gearing up for a major acquisition. Or it could launch new shares buyback and issue a dividend.
Google has the ability to make a transformative acquisition, much like Microsoft’s (NASDAQ: MSFT) purchase of LinkedIn (NASDAQ: LNKD) for $26 billion.
Top Stock Picks: Health Care
Numbers for second-quarter gross domestic product (GDP) recently came in a bit weaker than expected. Second-quarter GDP grew at 1.2%, which was well below estimates of a 2.6% gain.
Still, health-care stocks are still holding up nicely, as they are less dependent on economic growth. Health care managed to post the second greatest revenue growth of all sectors for the second quarter. Health-care sector revenues grew at 9% last quarter.
Also, as the likelihood of the Federal Reserve raising rates continues to decline, strong health-care dividends will remain in high demand. With that, we think the top play in the health-care industry is the robust dividend payer Johnson & Johnson (NYSE: JNJ).
Johnson & Johnson pays a 2.6% dividend yield and it has upped its annual dividend for 53 straight years. Johnson & Johnson managed to beat second quarter earnings estimates, showing that one of the biggest health-care companies in the world can still grow.
Johnson & Johnson’s pharmaceutical business was its big growth area, with revenues gaining nearly 10% year-over-year. Johnson & Johnson has a strong balance sheet as well and is only one of two companies with a AAA rating across the globe. Johnson & Johnson has a strong suit of businesses that can perform well in any economic environment.
Though the market’s outlook is uncertain, sticking to companies that are still posting solid earnings is a great way to profit in any economy. Right now, the technology and health-care industries are the top two places to look. Google and Johnson & Johnson are the two top stock picks from this earnings season; each is at the top of the earnings game right now.
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