Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. So what are the best stocks to buy now or put on a watchlist? Apple (AAPL), Union Pacific (UNP), Palo Alto Networks (PANW) Commercial Metals (CMC) and Dollar Tree (DLTR) are prime candidates.
With inflation worries growing, and the Federal Reserve taking a more hawkish approach to interest rates and bond purchase tapering, market action has been challenging so far in 2022. The Russian invasion of Ukraine is also continuing to weigh on markets.
Best Stocks To Buy: The Crucial Ingredients
Remember, there are thousands of stocks trading on the NYSE and Nasdaq. But you want to find the very best stocks right now to generate massive gains.
The CAN SLIM system offers clear guidelines on what you should be looking for. Invest in stocks with recent quarterly and annual earnings growth of at least 25%. Look for companies that have new, game-changing products and services. Also consider not-yet-profitable companies, often recent IPOs, that are generating tremendous revenue growth.
IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.
In addition, keep an eye on supply and demand for the stock itself, focus on leading stocks in top industry groups, and aim for stocks with strong institutional support.
Once you have found a stock that fits the criteria, it is then time to turn to stock charts to plot a good entry point. You should wait for a stock to form a base, and then buy once it reaches a buy point, ideally in heavy volume. In many cases, a stock reaches a proper buy point when it breaks above the original high on the left side of the base. More information on what a base is, and how charts can be used to win big on the stock market, can be found here.
Don’t Forget The M When Buying Stocks
A key part of the CAN SLIM formula is the M, which stands for market. Most stocks, even the very best, follow the market direction. Invest when the stock market is in a confirmed uptrend and move to cash when the stock market goes into a correction.
A stock market rally that kicked off 2022 soon fell on its face. And while the market attempted to rally, action has taken a bearish turn once again. The Nasdaq, S&P 500 and the Dow Jones Industrial Average are currently trading beneath the key 200-day moving average.
With the market back in a correction investors should avoid making new buys. It is also not the time to be adding shares to existing holdings. Investors should be raising cash and get entirely off margin.
Start by selling your weakest performing stocks first. If you have great conviction about a stock and have a profit cushion, consider holding through the correction.
Sell signals must be followed strictly to avoid painful losses. Consider selling stocks that are less than 7% below the purchase price. With stocks that have been rising above their 50-day or 10-week moving averages, beware of sharp breaks below those lines.
Now is the time to build a watchlist of stocks that can excel when the market begins a new uptrend. The stocks below are potential candidates.
Remember, things can quickly change when it comes to the stock market. Make sure you keep a close eye on the market trend page here.
Best Stocks To Buy Or Watch
- Union Pacific
- Palo Alto Networks
- Commercial Metals
- Dollar Tree
Now let’s look at Apple stock, Union Pacific stock, Palo Alto Networks stock, Commercial Metals stock and Dollar Tree stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
An important short-term goal for AAPL stock will be retaking its 50-day line. It fell below the key benchmark just over a week ago. It recently rebounded from its 200-day moving average, but hit resistance at its 21-day line.
Nevertheless, Apple stock is seeing its relative strength line hold around new highs. This is a positive, in light of the broader market sell-off. Stocks with strong RS lines during choppy markets can be among the first to break out during an uptrend. It is in the top 10% of stocks tracked over the past 12 months.
Even so, while Apple is performing much better than most stocks, especially techs, it likely will struggle to advance unless the market and Nasdaq are trending higher. That’s in contrast to commodity- and shipping-related stocks, some of which are liste here.
Apple stock has seen its Composite Rating shoot up to a very strong 91 out of 99. Apple became the first company to reach a market capitalization of $3 trillion earlier this year, though it has now backed off this level.
The IBD Stock Checkup tool shows earnings growth is bouncing back in recent quarters following the Covid-19 pandemic. Apple stock got a boost after reporting earnings for Q1 of fiscal 2022.
It was the firm’s best-ever quarter for revenue, with all categories excluding iPads coming in above views. Apple did not give guidance for the current quarter, though executives were relatively upbeat. The firm has not given specific quarterly guidance since the Covid-19 pandemic began.
Supply constraints meant supply could not keep up with demand. Another bright spot was sales in China, which grew 21% in the quarter.
Apple‘s EPS growth has averaged 65% over the past three quarters. This is comfortably clear of the 25% earnings growth sought by the CAN SLIM cognoscenti.
Analysts see earnings growth of 8% growth in fiscal 2023. Investors will want to see CEO Tim Cook squeeze out more impressive gains.
With its iPhone business maturing, investors are looking for a new big growth driver for Apple stock. Services and wearables are seen as two key drivers.
In the September quarter, Apple’s services revenue rose 26% year over year to $18.3 billion. Services include the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
One reason to be bullish on Apple is it continues to produce new products, which is a major success factor in the CAN SLIM system.
Speculation is reaching fever pitch that Apple is looking to make a self-driving electric car. In November Bloomberg reported Apple is aiming to launch self-driving EVs in 2025.
Union Pacific Stock
UNP stock is in a buy zone after chugging past a shallow flat-base buy point of 256.21.
Volume has been higher than normal on the breakout, a positive sign. In addition, this is a first stage base. Such early-stage patterns are more likely to net big gains.
The relative strength line surged into new-high ground ahead of Union Pacific stock.
Earnings have grown by an average of 35% over the past three quarters, which is above CAN SLIM requirements.
The recent IBD Stock Of The Day has also been attracting institutional investment, with its Accumulation/Distribution Rating coming in at a healthy B.
The ongoing crisis in Ukraine should help UNP stock. A study about the 2008 oil price spike found that 75% of shippers using intermodal deliveries — requiring both truck and rail — increased their reliance on intermodal during that period.
The benefits for railroad operators amid high oil prices depend on a range of factors, including flexibility, efficiency and service. Other rail stocks also are gaining momentum, including CSX (CSX).
This plays to Union Pacific’s strengths. It is a big believer in precision scheduled railroading, which minimizes dwell time — the time customer carloads wait for an available to train to get moving — while extending train length.
In 2021 Union Pacific saw its average train length swell by 2% to 9,300 feet.
Amid Covid supply-chain issues that bottlenecked ports and halted some auto production, Union Pacific saw 1% less volume in 2021 vs. 2019. Meanwhile, operating-efficiency gains helped fuel a 16% increase in operating income.
Deutsche Bank analyst Amit Mehrotra wrote in a research note that Q1 rail volumes through February were down 3.8% from a year ago among public Class 1 railroads. UNP volume, up 4.4%, “is the only rail outperforming expectations.”
As supply-chain constraints ease through 2022, Union Pacific stands to benefit from a recovery.
Palo Alto Networks Stock
Palo Alto Networks stock rebounded powerfully amid the Ukraine crisis. The cybersecurity play is trading below its buy zone from a 572.77 consolidation pattern entry.
PANW stock now looks set to test its 50-day moving average The RS line for Palo Alto stock is just off record high levels, according to MarketSmith chart analysis. That’s a strong positive.
Last Thursday, PANW stock jumped 13% in choppy but active trade. It bounced back above its short-term moving averages after coming close to a test of the 200-day line. The gains came as the escalating Ukraine-Russia conflict raised fears of more cybersecurity attacks, after the U.S. accused Moscow of a hack against its Slavic neighbor earlier. It is up more than 2% this week.
The California-based cybersecurity company shows a very strong Relative Strength Rating of 95. This puts it in the top 5% of stocks over the past 12 months. Palo Alto Networks has a solid EPS Rating of 81 out of 99.
In fiscal 2021, Palo Alto earnings rebounded 26% after it took a pandemic hit the prior year. Wall Street expects PANW earnings to grow a further 19% in 2022 and 24% in 2023, according to FactSet.
The recent IBD Stock of the Day is strong on the bottom line. Sales growth ranged between 28% and 32% the last three quarters, above the 25% or higher level a CAN SLIM investor would want to see. Sales are seen growing 19% in all of 2022 and 24% in 2023.
Palo Alto is worth considering as cybersecurity stocks have been storming higher due to the Russian-Ukraine conflict.
The company also impressed analysts with its most recent earnings report.
“Palo Alto delivered another strong quarter with broad-based outperformance highlighted by 70% next-gen ARR growth and hardware sales that continue to allude supply-chain challenges as the company takes share on accelerating demand trends,” said RBC Capital analyst Matthew Hedberg in a report.
At Wells Fargo, analyst Andrew Nowinski said in a report: “The key takeaway was the next-gen ARR, which reached $1.43 billion, with net new ARR of $166 million.”
For the current quarter ending in April, Palo Alto said it expects per-share earnings in a range of $1.65 to $1.68 on revenue of $1.355 billion.
Analysts had projected earnings of $1.63 a share on revenue of $1.346 billion. Palo Alto forecast billings of $1.6 billion compared with analyst estimates of $1.587 billion.
Commercial Metals Stock
Commercial Metals stock is just below its 38.82 buy point after forming a consolidation pattern over the past eight weeks.
Investors could also view 37.59 as an entry, though it is not a proper handle because as CMC stock dipped a bit too far intraday Feb. 24.
The relative strength line has just hit a new high, bolstering its case.
The stock holds a best-possible Composite Rating of 99. It also holds a perfect EPS Rating, which reflects stellar earnings.
In addition, Big Money is getting behind the stock. It’s Accumulation/Distribution Rating comes in at B.
In total, 62% of its stock is already owned by funds according to MarketSmith data. Institutional backing is key to big market moves.
The recent IBD Stock Of The Day has been moving higher on a strong demand outlook. It is looking to build on strong recent profits, with EPS growing by an average of 105% over the past three quarters.
Steelmakers such as Nucor (NUE) have been rallying of late. They have been making up ground despite steel prices continue to fall from the peaks hit in the summer of 2021.
Management told investors that November-quarter earnings highlighted “a growing construction backlog in North America, as well as broad strength across key end markets in both North America and Europe.”
The company also noted increased margins for steel products in North America.
Commercial Metals is building its third and fourth micro mills, which it says produce steel with higher strength and at lower cost than mini mills.
The third mill, in Arizona, will replace a much-higher-cost facility in California that it will sell to pay half the construction costs. Both new micro mills should be online in time to benefit from peak spending from the $1.2-trillion infrastructure bill approved last year.
“The new micro mill will fortify our position in the large construction markets within the region and optimize CMC’s existing Eastern U.S. operational footprint through enhanced production flexibility, improved service capabilities, and logistical efficiencies,” CEO Barbara Smith said in a statement.
Dollar Tree Stock
DLTR stock is trading just under a 144.56 buy point. Shares flirted with various entries around that level over the past few weeks. While the official entry is 149.47, the bulk of trading in the current consolidation occurred below 145.
This is a second stage base, which means it is more likely to succeed.
Dollar Tree rebounded above the latest buy point on Thursday, in the wake of its latest earnings report. Shares dipped back down on Friday.
A key reason to keep a close watch on the stock is its relative strength line. The RS line has spiked hard from recent lows and has just hit a new high.
Institutional buying has been picking up in recent weeks, which is a good sign going forward.
The specialty discounter recently announced that Chairman Bob Sasser will retire soon. Activist investor Mantle Ridge took a big DLTR stock position in November and soon began a push to replace the board. Those moves sent shares soaring to highs. Markets may see Sasser’s exit as smoothing the way for Mantle Ridge to get much of what it wants.
The Stock Checkup Tool shows Dollar Tree earnings have been hit by the coronavirus pandemic, slipping 11% over the past three quarters.
Analysts expect Dollar Tree earnings jump 32% growth in the current fiscal 2023 before moderating to 15% growth in 2024.
Back in November the firm announced it was rolling out new $1.25 price points across its Dollar Tree locations, starting by the end of its fiscal first quarter.
Dollar Tree said the decision was permanent and would apply to most products. The move comes as inflation continues to spiral.
The chain also argued the decision would allow it to introduce new products and reintroduce those pulled “due to the constraints of the $1.00 price point.”
“For 35 years, Dollar Tree has managed through inflationary periods to maintain the everything-for-one-dollar philosophy that distinguished Dollar Tree and made it one of the most successful retail concepts for three decades,” the company said in a statement.
BMO this week upgraded DLTR to outperform with a price target of 170.
It said expectations are too low for the gross margin impact of the shift to a $1.25 price point which “could support upside to 2022 earnings guidance.”
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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