- The S&P 500 hit new all-time highs on Wednesday.
- The rally could continue amid a strong Q1 earnings season.
- However, investors must be careful about which stocks to buy given stretched valuations.
The reached a new record on Wednesday, closing at 7,137.90 after rising 1.05% during the day. The market has been strong, with gains in 13 out of the last 16 trading sessions.
Since its recent low on March 30, the index has climbed about 13%.
Two main reasons drove this rise. First, Donald Trump extended the ceasefire with Iran without setting an end date, which reduced worries about conflict. Second, company earnings have been better than expected. Data from FactSet shows that 88% of companies that reported results beat profit estimates, higher than the usual 78%.
Overall, company profits grew 13.2% compared to last year. This marks the sixth straight quarter of double-digit growth.
The S&P 500 rally could continue, but some valuations are stretched…
The earnings season stays busy in the coming days, with Microsoft, Amazon, Alphabet, Meta, and Apple all set to report their results. If companies keep beating expectations, the S&P 500 may continue moving toward new highs.
At the same time, the market looks expensive at current levels. The index trades at a forward P/E of about 20 times earnings, higher than its 10-year average of 18.9 times. Many tech stocks have risen sharply over the past few months and now trade at high valuations.
In this kind of market, stock selection matters more. Investors may need to focus on companies that still offer reasonable valuations rather than those that have already run up too much.We therefore turned to the Investing.com screener to identify S&P 500 stocks that meet the following criteria:
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Upside potential of more than 25% according to InvestingPro Fair Value (which combines several recognized valuation models)
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Upside potential of more than 35% based on the average analyst target
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InvestingPro Health Score above 2.5/5
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Quarterly earnings release within the next 30 days
This search identified 10 stocks:
Specifically, these S&P 500 stocks appear undervalued by 25.3% to 58.6% based on Fair Value estimates, while analysts see potential upside ranging from 35.5% to 75.6%.
Among these stocks are:
- makes tools like barcode scanners, mobile computers, and tracking systems used in warehouses, factories, hospitals, and retail stores. These help businesses automate and manage operations, a fast-growing area due to e-commerce and automation. For its Q1 2026 results on May 12, analysts expect earnings of $3.49 per share, about 10% higher than last year. The company expects full-year earnings between $17.70 and $18.30, showing confidence in strong demand.
- supplies electricity and gas to about 16 million people in California. Utility stocks are gaining attention as stable investments, especially with high energy prices. It also benefits from rising power demand from AI and data centers, with projects exceeding 9.5 gigawatts. For Q1 2026, earnings were expected around $0.34 per share. For the full year, earnings are expected to reach $1.65 per share, about 10% higher than 2025.
- created the FICO score, widely used by banks to check creditworthiness. It has a strong position in this space and earns steady, recurring revenue. Its AI-based software business is growing fast, with recurring revenue rising 33% each year. For Q2 2026 results on April 28, analysts expect earnings of $11 per share, nearly 41% higher than last year. The company also expects to beat its own full-year targets.
However, other stocks on the list show even higher potential according to analysts and/or Fair Value!
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such, it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remain with the investor.
