The S&P 500 Is Up 7% Year to Date, but These 3 Stocks More Than Doubled That Return So Far. Is It Time to Buy?

Globe and Mail

2 days ago

Key Points
Meta's outstanding operating margin is part of the reason why its stock is up 20% year to date.
After years of stagnation, IBM is showing signs of significant growth.
There has seemingly been no limit to Palantir's staggering momentum.
10 stocks we like better than Palantir Technologies ›
The first half of 2025 is in the books -- and it was a roller coaster. Nevertheless, as of this writing, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are up 7%, 8%, and 5%, respectively.
However, many stocks have put those returns to shame.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Three Motley Fool contributing analysts identified three stocks that have more than doubled the return of the S&P 500 so far this year: Meta Platforms (NASDAQ: META), International Business Machines (NYSE: IBM), and Palantir Technologies (NASDAQ: PLTR).
Is it time to load up on them?
Meta generates roughly $470 million in revenue every day
Jake Lerch (Meta Platforms): As of this writing, shares of Meta Platforms are up 20% year to date, nearly triple the return of the S&P 500 over the same period.
Clearly, Meta is firing on all cylinders, but what is behind its big rally, and will it continue?
To start, Meta's stock is surging because the company's business model continues to prove its worth. Meta has more than 3 billion daily average users across its platforms, like Facebook and Instagram, meaning it can place millions of ads each day, which, in turn, generates a daily average of around $470 million in revenue for the company.
Better still, a tremendous share of Meta's revenue is converted into profit. Indeed, the company's operating margin stands at 43%. For context, many analysts view a margin of 10% to be healthy, while 20% is considered high.
Even within the lofty ranks of the " Magnificent Seven," Meta's margin shines. It ranks third -- behind only Nvidia (the world's largest company by market cap) and Microsoft (the world's second-largest company by market cap).
Turning to its future, Meta appears very well positioned. With so much of the world's population already using its platforms on a daily basis, Meta can afford to invest heavily in new initiatives. It has spent heavily on artificial intelligence (AI) infrastructure, and it now appears ready to unleash the potential of that investment.
The company plans to roll out automated advertising -- powered by AI -- across its platforms by the end of 2026. This could introduce a new lucrative revenue stream for the company, further boosting its already impressive revenue and profit totals.
Meta stock has outperformed the market so far this year, and it may continue to do so thanks to its immense user base, strong margins, and AI-powered innovations.
Investors should not ignore the quiet comeback of this tech giant
Will Healy (International Business Machines): Investors can likely be forgiven for not noticing the comeback in IBM stock.
The venerable tech giant struggled throughout the 2010s as growth in its consulting and tech infrastructure businesses slowed dramatically, and most investors seemed to turn their attention to newer and seemingly more cutting-edge tech companies.
However, its paradigm began to shift when IBM bought cloud giant Red Hat in 2019. Soon after, IBM appointed Arvind Krishna, the executive who drove this purchase, as its CEO in April 2020.
That move enabled IBM to emerge as one of the leaders in the hybrid cloud. Also, with its spinoff of its managed infrastructure business into Kyndryl, it was free to focus more heavily on cloud, AI, and supercomputing enterprises.
With that, investors again began taking notice of the stock, particularly after the end of the 2022 bear market. So profound is its growth that it returned to its previous all-time high in 2024, and its growth has continued. In 2025, the stock is up 30%.
Admittedly, the company has more work to do. In the first quarter of 2025, revenue rose by only 1%. Nonetheless, its software segment, which accounts for all of the company's current growth, was up 7%, signaling that improved growth could be at hand.
Additionally, it approved its 30th consecutive dividend increase earlier this year. At $6.72 per share annually, its dividend yield is around 2.4%, almost double the S&P 500 average of 1.2%. That dividend should make the stock more attractive for income investors.
Indeed, the buy case is more unclear for growth investors considering its 49 P/E ratio. Still, a forward P/E ratio of 26 implies that significant financial improvement is forthcoming, and it appears to be positioned to match the market's performance. That factor likely makes IBM a buy for investors seeking both income and growth.
Palantir Technologies continued to soar, doubling already since January
Justin Pope (Palantir Technologies): Artificial intelligence software is already changing the world, and Palantir Technologies has become the face of that.
The company develops custom software applications for government and corporate clients that utilize a combination of AI, machine learning, and data analytics to address some of the world's most pressing challenges. The company formally launched its AIP platform for AI applications in 2023, and Palantir's growth has continued to accelerate since then.
There are 20,000 large businesses in the United States alone, so Palantir, with fewer than 450 U.S. commercial customers, has a tremendous growth opportunity ahead. That has investors expecting big things in the future, which continues to propel Palantir's stock to great heights. Shares gained 1,600% over the past three years, including a 100% run since the start of 2025.
While you never know how high a stock can go, it's probably not wise to buy here -- Palantir trades at astronomical valuations, which will likely weigh on the stock's future performance.
Analysts estimate Palantir will grow earnings by an average of 31% annually over the long term, which is blistering fast growth. Yet Palantir trades at a forward P/E ratio of 261, versus 22 for the S&P 500, which has historically grown at an annualized rate of approximately 10%.
So, Palantir, anticipated to grow 3 times faster than the S&P 500, is valued nearly 12 times higher? It doesn't make sense. Therefore, it's probably best to avoid chasing this red-hot stock until that ratio comes back to Earth a bit.
Should you invest $1,000 in Palantir Technologies right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jake Lerch has positions in International Business Machines and Nvidia and has the following options: long July 2025 $425 puts on Microsoft. Justin Pope has no position in any of the stocks mentioned. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines, Kyndryl, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.