It’s been an interesting year for the stock market. The major indices keep plowing to new all-time highs. This has led some investors to scour for the best S&P 500 stocks to buy. But, much of the recent gains have been primarily driven by huge rallies in a limited number of companies.
In fact, the so-called “Magnificent Seven” have driven a massive chunk of the S&P 500’s overall gains. This has lead to an increase in fear that the market is too concentrated in a handful of mega-cap companies. In fact, concentration in the market’s top holdings has hit its highest point in at least 50 years.
The last time the market acted like this was the late 90s, when a handful of software and internet names skyrocketed. That event was followed by the painful dot-com bust. History doesn’t always repeat, but it often rhymes. It could be a terrible mistake betting too heavily on the Magnificent Seven at this juncture.
By contrast, there are some smaller and more under-the-radar S&P 500 stocks that are much better]to buy for long-term investors. From these low starting valuations, these three S&P 500 stocks to buy are set to deliver tremendous results in the years to come.
MarketAxess (MKTX)
MarketAxess (NASDAQ:MKTX) is one of the two dominant credit and fixed income trading platforms, along with chief rival Tradeweb Markets (NASDAQ:TW).
Bonds were the last major financial market to turn to digital trading. That’s the case because bonds are less standardized than stocks, options or futures. Bonds often have different clauses, covenants and other such quirks that lead folks to want to trade them in-person rather than on a screen.
However, the pandemic finally forced a sizable chunk of fixed income activity away from phones and trading desks and onto MarketAxess’ platform. Specifically, MKTX has grown revenues from $511 million in 2019 to an estimated $814 million for this year. And after 8% revenue growth this year, analysts expect a return to double-digit top and bottom-line growth in 2025.
Despite that, MKTX stock has lost two-thirds of its value since its 2020 peak. That came as the initial pandemic-induced revenue boom slowed down. Meanwhile, competition from Tradeweb intensified.
However, the credit market is large enough to support both MarketAxess and Tradeweb. And once the U.S. Federal Reserve starts cutting interest rates, trading activity should spike in fixed income, leading to a big pop in both MarketAxess’ earnings and stock price.
Henry Schein (HSIC)
Henry Schein (NASDAQ:HSIC) is the world’s largest provider of dental equipment and merchandise. This distribution company operates in 33 countries and delivers goods to more than one million customers around the globe.
The dental services and equipment market should continue to enjoy rapid growth in coming years. As social media and video conference calls have taken off, people place more importance on keeping up a bright attractive smile. The rise of dental aligners has greatly expanded the adult orthodontics market, while people are increasingly spending on other cosmetic procedures such as teeth whitening and veneers as well.
And given the world’s rapidly aging population, there should be an increase in demand for root canals, implants and other such treatments as well. Henry Schein is a big player in developing markets, meaning that it will benefit as the global middle class emerges and starts to have enough disposable income to take better care of their teeth as well.
Since going public in 1995, Henry Schein has grown its revenues at a dazzling 11.5% compounded annual growth rate. And given the strong tailwinds for the dental industry, Henry Schein should have plenty more runway ahead of it.
McCormick (MKC)
McCormick (NYSE:MKC) is the dominant player within the U.S. spices and seasonings market.
In fact, McCormick faces surprisingly little competition. It controls an estimated 40% to 60% market share in its primary categories, coming in at more than double that of its nearest branded competitor. McCormick also has a large store brand spices and seasonings business, meaning it gets paid regardless of whether consumers pick a McCormick or store brand spice bottle.
MKC stock has been one of the all-time great blue-chip stocks, with shares rising more than 6,500% over the past 40 years. Humans love tasty flavorful foods. Spices are immune to technological disruption. And McCormick has strong pricing power, as consumers aren’t too sensitive to the price of smaller cooking items like Old Bay seasoning or a jar of herbs.
McCormick isn’t resting on its laurels, however. The company is expanding into adjacent markets, such as its recent M&A spree within the hot sauce space. It has acquired Frank’s and Cholula to add to its position in this fast-growing category that Millennial and Gen Z shoppers love.
— Ian Bezek
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Source: Investor Place