In the ever-shifting Standards and Practices (S&P) 500 Index, where giants often dominate the spotlight, it’s easy to overlook the hidden gems that quietly craft their path to greatness. The article lists three overlooked S&P 500 stocks that are worthy of your attention. While their household names might not shine as brightly as some, these industry stalwarts have made strategic moves promising massive upside potential.
In the energy sector, the first one is quietly revolutionizing renewable energy solutions. Their focus on higher-margin IQ8 microinverters and expansion into the energy storage market has set them on a remarkable trajectory.
Meanwhile, the second’s commitment to improving operating margins and its agility in identifying market strengths position it as a formidable player. Then there’s the third, with its unparalleled treasure trove of intellectual property, reinventing the entertainment and leisure industries.
These stocks hold an intricate web of opportunities and strategies that make them compelling investments in the S&P 500.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) has strategically focused on diversifying its product mix to meet the evolving needs of the renewable energy market. For instance, the company reported that approximately 78% YoY of their Q2 2023 microinverter shipments were IQ8 microinverters. This shift towards IQ8 products reflects a focus on higher-margin offerings. The IQ8 microinverters are likely more advanced and efficient, appealing to customers seeking the latest technology.
In addition to microinverters, Enphase has entered the energy storage market with the shipment of 82.3-megawatt hours of batteries. The energy storage market is experiencing significant growth as it enables the efficient use of solar power. Enphase’s presence in this market diversifies its product portfolio and revenue streams. Also, Enphase’s revenue mix for Q2 shows a well-balanced distribution between the US and international markets. The company’s global presence is evident, with 59% of revenue coming from the United States and 41% from international markets.
On the other hand, Enphase’s ability to expand its presence in diverse markets and regions is a clear strength that contributes to its growth potential. Enphase reported significant growth in Europe, with a 25% sequential increase in revenue. This demonstrates the company’s ability to penetrate and establish a strong foothold in international markets. Expanding in Europe is a strategic move, as the region increasingly adopts renewable energy solutions.
Enphase’s revenue in Australia more than doubled YoY, indicating its success in the Australian market. Lastly, they introduced new products in Latin America, including batteries and software platforms, reflecting the company’s efforts to cater to the unique needs of different markets. ENPH easily earns its spot on our list of overlooked S&P 500 stocks.
Its continuous focus on improving operating margins is critical to 3M’s (NYSE:MMM) growth potential. In Q2 2023, the company reported an adjusted operating margin of 19.3%. Notably, this margin was impacted by restructuring charges of $212 million, which represented a headwind to the adjusted operating margin of 0.27%.
Excluding these charges, 3M managed to increase its operating margin YoY. The commitment to enhance operating margins is a fundamental strength that allows 3M to maximize profitability and reinvest in growth initiatives. It indicates that the company is proactive in managing its margins effectively.
Furthermore, the company explores to identify and capitalize on market strengths and trends to achieve rapid growth. The company recognized strength in markets such as automotive (original equipment manufacturer (OEM) and aftermarket), highway infrastructure, and personal safety. These segments experienced positive growth.
Although the Health Care segment saw only slight growth, it was impacted by lower post-COVID-related demand, primarily in the Biopharma, Health Information, and Medical Solutions businesses. This represents 3M’s ability to identify market opportunities and tailor its strategies to make the most of them. Thus, the company’s diversified portfolio allows it to thrive in certain segments even when facing challenges in others.
Regarding liquidity, sustainable cash flow generation is another fundamental strength underpinning a company’s growth potential. For instance, in Q2 2023, 3M reported an adjusted free cash flow of approximately $1.5 billion, representing a significant increase of 44% YoY.
Finally, the free cash flow conversion rate was 122%, with an improvement of 0.50% YoY. This highlights 3M’s efficient working capital management and ability to convert earnings into cash, providing the company with financial flexibility for investments and shareholder returns.
Disney’s (NYSE:DIS) core strength lies in its extensive intellectual property library. The company has a treasure trove of beloved brands and characters that have captured the hearts of audiences worldwide. Thus, Disney’s ability to leverage its IP in multiple ways is a key driver of its growth.
These characters and stories are not confined to the screen; they extend to Disney’s parks and resorts. For instance, Disney is opening new theme lands, such as Frozen theme land in Hong Kong Disneyland and Walt Disney Studios Park in Paris, as well as a Zootopia theme land at Shanghai Disney Resort. Also, Disney plans to bring an Avatar experience to Disneyland.
Notably, Disney’s Parks and Experiences segment continues to be a significant growth engine for the company. Despite challenges, including the impact of the COVID-19 pandemic, Disney’s international parks have shown a strong recovery. Shanghai Disney Resort and Hong Kong Disneyland experienced meaningful growth in revenue, operating income, and attendance in Q3 2023. This underscores the enduring appeal of Disney’s brand and its ability to drive growth through its parks.
Furthermore, Disney’s Cruise Line has demonstrated impressive revenue and operating income growth, with a planned expansion by adding two more ships in fiscal ’25 and another in fiscal ’26. This nearly doubles Disney’s worldwide capacity in the cruise industry. Therefore, these expansion efforts indicate Disney’s commitment to long-term growth in its Parks and Experiences segment.
Finally, Disney is actively exploring opportunities in the sports betting marketplace through its licensing arrangement with PENN Entertainment (NASDAQ:PENN). This move extends the ESPN brand into the growing sports betting industry, offering a new experience for sports fans and enhancing consumer engagement. If you are looking to add to your portfolio, check out these overlooked S&P 500 stocks.
As of this writing, Yiannis Zourmpanos held a long position in ENPH, MMM, and DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.