The S&P 500‘s home to some of the largest enterprises in America. And over the last five years, simply replicating the performance of this index with a tracker fund would have more than doubled an investor’s money. But for stock pickers, the returns have been even more explosive.
Take Nvidia as an example. By successfully capitalising on the artificial intelligence (AI) spending tailwinds, the GPU chip designer has seen its share price skyrocket by over 1,400% during the same period!
This goes to show that by investing in top notch stocks, some tremendous gains can be unlocked. So with that in mind, I asked ChatGPT what it believes are the best S&P 500 shares to buy right now that aren’t in the ‘Magnificent 7’.
A financial kingpin
The first pick was Visa (NYSE:V). Chances are this business needs no introduction. Its technology infrastructure powers an estimated 39% of all debit and credit card electronic payments worldwide. And since the firm charges a small fee on each transaction moving through its payment network, the business is a cash generating machine.
As such, the balance sheet is in tip-top shape. And with more purchasing activity shifting away from traditional cash transactions, the business has ample long-term tailwinds to drive growth moving forward. That certainly sounds like a compelling investment case, so what’s the catch?
Despite its dominant position, Visa isn’t without its risks. Regulators have been clamping down on the firm’s fee structure, limiting the group’s ability to expand profit margins. Its enormous market share also puts it squarely in the eyes of anti-trust investigators to protect customers and consumers. That’s a handicap that many of its fintech rivals don’t have, making life a lot easier for disruptive start-ups in the fintech space.
So is this a good S&P 500 stock to consider buying in May? I think it definitely deserves a closer look. The group’s valuation is pretty demanding, with a price-to-earnings ratio of 52. But given the quality of this business, that’s a premium that might be worth paying.
Opportunities in healthcare
Another two stocks ChatGPT recommended as top-tier companies are Johnson & Johnson and UnitedHealth. Both a prominent players in the healthcare sector. And considering demand for healthcare products and services is unlikely to disappear anytime soon, both businesses appear to have ample longevity.
Those are obviously some attractive traits, particularly for investors looking to load up on defensive stocks. However, just like Visa, these companies have their weak spots.
Developing new drugs and medical devices is a regulatory nightmare that’s enormously expensive and highly competitive. Johnson & Johnson’s size certainly helps in this regard, but clinical trial failures on critical projects can be disastrous, especially if a competing product succeeds.
Meanwhile, health insurance is an enormously complicated business. If the company doesn’t price its plans correctly, losses from customer claims could drive earnings in the wrong direction.
The bottom line
All three S&P 500 stocks appear to show promise. But are they the best S&P 500 stocks investors can buy right now? I’m not convinced. I’m certain there are far more promising opportunities hidden in the US’s flagship index waiting to be discovered.
