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? Google parent Alphabet (GOOGL), CarMax (KMX), Regal Beloit (RBC), Westlake Chemical (WLK) and Discover Financial Services (DFS) are prime candidates.
Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects rising confidence that the economy will eventually recover from the coronavirus. The stock market has managed to get back on track after a brief correction, when when the major indexes all dipped below their 50-day moving averages.
Now is a good time to get back into the market, though it is still wise to exercise caution. One good sign is the the rally is broadening out significantly, with more and more stocks from a variety of sectors breaking out. The Nasdaq, which led the market move into its correction, remains below its 50-day line with highly valued growth names still significantly damaged.
The coronavirus pandemic remains a concern, though new coronavirus cases, hospitalizations and even deaths are falling sharply. President Joe Biden signed the $1.9 trillion coronavirus stimulus bill last week. While it provides aid to many Americans, there are concerns among some economists it could lead to inflation.
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So why do the stocks chosen stand out? Before turning to that question, it is important to consider how one goes about choosing a stock in the first place. Superior fundamentals and technical action, and buying at the right time, are all part of a shrewd investing formula.
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
Never forget that the M in CAN SLIM stands for market. Most stocks, even the very best, will tend to 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.
The Dow Jones Industrial Average, Nasdaq and the S&P 500 have been rallying strongly after recent pressure. The S&P 500 and the Dow Jones have recaptured their 50-day moving averages. The Nasdaq also briefly traded above this key benchmark, but slipped back below it. Technology and growth stocks are still showing signs of weakness.
It is now is a good time to get back into the market and buy fundamentally strong stocks coming out of proper chart bases. The stocks featured below are potential candidates.
As you identify stocks, on a technical basis look for stocks with rising relative strength lines. Stocks that hold up amid tough conditions often bound to new highs once a market stabilizes.
Remember, things can quickly change when it comes to the stock market. Make sure you don’t miss out on a rally by keeping a close eye on the market trend page here.
Best Stocks To Buy Or Watch
Now let’s look at Google stock, CarMax stock, RBC stock, Westlake Chemical stock and Discover Financial Services stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
The Google parent is near a buy point of 2,145.24 after forming a three-weeks-tight pattern, according to MarketSmith chart analysis. The entry is just above the mid-February all-time high. Google stock is looking for support at its 21-day exponential moving average. It is also four weeks into a possible flat base, which would have the same 2,145.24 entry.
The relative strength line for GOOGL stock is at near a record high. This gauges a stock’s performance compared to the S&P 500. If Alphabet’s RS line spikes again, it will be a sign the stock is ready to push higher still.
GOOGL stock has a very strong IBD Composite Rating of 94. That puts it in the top 6% of stocks tracked overall. Earnings are stronger than stock market performance, however. Nevertheless, the stock is up almost 16% so far this year.
Google stock should benefit from a rebound in digital advertising as coronavirus vaccinations expand. Stock buybacks are another bright spot. Cloud computing holds promise, but remains an unprofitable business for Alphabet for now.
The tech giant has a Relative Strength Rating of 63. That means it has outperformed 63% of stocks tracked over the past 12 months.
In recent years, Google stock has only slightly outpaced the S&P 500, but that outperformance has picked up in recent months, as its RS line shows. Google has done exceptionally well vs. many tech stocks over the past few weeks.
Earnings are a key strength, which is highlighted by its EPS Rating of 93 out of a best-possible 99. However earnings have grown by an average of 10% over the past three years, below the 25% sought by CAN SLIM investors.
Last month the firm reported fourth-quarter earnings and revenue that crushed estimates as its core search advertising business rebounded. EPS grew 29% and revenue 23%, both accelerating for a second straight quarter.
Cloud computing revenue topped views, though high investment prevented it from being a profitable enterprise.
“Cloud businesses scale, so revenue/booking trends will matter,” Morgan Stanley analyst Brian Nowak said in a report to clients.
And while operating margins for the Google cloud computing business came in much lower than analyst estimates, Bank of America analyst Justin Post was upbeat.
“We think new cloud disclosure suggests optimism on margin trajectory, and we see a potential $10 billion profit improvement over the next five years using Amazon margins as a target,” Post said in a research note.
Analysts expect Google earnings to swell 32% in 2021 and 17% in 2022.
The used car dealer chain is currently well clear of its 50-day moving average, which is a bullish sign.
In addition, the relative strength line for CarMax stock is looking mighty. It is sitting at all-time highs on its weekly chart, and has been trending upwards since early January. The stock is up more than 41% so far this year.
It has been affected by the initial coronavirus lockdowns, but EPS roared back to 37% growth in the most recent quarter. Earnings have accelerated for the past two quarters.
Analysts see earnings falling 16% in 2021, before roaring back with growth of 27% in 2022.
Big money is piling in, with its Accumulation/Distribution Rating coming in at B+. This represents moderate buying over the past 13 weeks. In total, 57% of its stock is held by funds.
CarMax operates used car stores in more than 70 metropolitan markets. It is a recent IBD Stock Of The Day.
CarMax’s network of 220 stores nationwide sold more than 830,000 used cars in its last financial year. Overall used vehicle sales are expected to rise 2.9% in 2021 to 39.3 million, according to Cox Automotive.
For Q3, it reported more than 50% of customers chose to advance their transaction online. It has expanded in home delivery and contactless curbside pickup, tapping new avenues of growth.
“We are on track for most of our customers to have the ability to buy vehicle online independently if they choose by the middle of next fiscal year,” CEO Bill Nash said on an earnings call last December.
Meanwhile, more consumers moved to the used car market during the pandemic. At the same time, used car prices rose on a combination of factors.
The pandemic strained Americans’ wallets, forcing consumers to hold on to old cars longer and making fewer used cars available for sale. People also sought to avoid mass transportation. Rising new car prices, partly due to limited supply, also turned more shoppers to the used market.
RBC stock is at the top of its buy zone after breaking out of a cup base. The ideal buy point here is 147.07.
The relative strength line has more than recovered after a brief pullback, spiking to a new high. It has been on the charge since mid-February.
The recent excellent performance of RBC stock has seen it make its way onto the highly prestigious Leaderboard list of top growth stocks.
It has a strong, but not ideal, Composite Rating of 88 out of 99. It boasts a solid mix of stock market and earnings performance. So far in 2021 the stock has posted a gain of more than 25%.
It has been getting upward earnings revisions of late, with EPS seen rising 24% in 2021, before gaining 13% in 2022.
Institutions are keen on the stock, with its Accumulation/Distribution Rating coming in at A. This represents heavy buying among institutional investors. In total, 64% of its stock is held by funds.
Wisconsin-based Regal Beloit makes “motors, bearings, gearing, conveying, blowers, electric components, and couplings,” according to the company. Its products can be found in farm equipment, pool and spa equipment and commercial HVAC systems. It owns nearly 30 brands including Marathon Motors and Marathon Generators, Browning and Milwaukee Gear.
Regal earnings jumped 42% to $1.78 a share in the fourth quarter, better than expected and up from a 28% gain in Q3 and 36% decline in Q2. Sales climbed 6% to $780.5 million in Q4, also beating analyst views and returning to growth after several down quarters.
Last month, the company agreed to buy Rexnord Corp.‘s (RNX) bearings, couplings and gears unit with Regal in a Reverse Morris Trust transaction. The deal is expected to close in Q4, pending regulatory approval.
Regal has also found other ways to expand its business amid Covid-19. Improving air filtration systems have been a major issue during the pandemic. The company has developed a new air treatment system that uses UV light to keep the air free of viruses and bacteria.
“We see lots of potential for this product, even beyond Covid-19 as end users become more interested in keeping indoor air free of all kinds of pathogens,” CEO Louis Pinkham said during last month’s Q4 earnings call.
Westlake Chemical Stock
Westlake Chemical is in buy zone after clearing a 90.46 buy point. It managed to break out of a first stage cup-with-handle base. Such early stage bases have more chance of success, according to IBD research.
The relative strength line is sitting around new highs. It has been making swift progress so far in 2021, gaining almost 13%.
WLK stock was just added to IBD Leaderboard. However investors will be looking to see its earnings improve, as it currently holds a poor EPS Rating of 46. Earnings jumped 47% in the latest quarter, with analysts expected 147% growth in 2021.
Nevertheless, institutional sentiment suggests there are good time ahead for the stock. At the moment, it holds an Accumulation/Distribution Rating coming in at B. This represents moderate buying among institutions.
In total, 70% of all stock is held buy funds. The Fidelity Contrafund (FCNTX), which is rated by IBD research as one of the top performing funds, is a noteworthy holder.
Headquartered in Houston, Westlake is a global manufacturer and supplier of materials and products used in packaging, health care products, car parts and consumer goods, as well as building and construction products.
The American Chemistry Council said U.S. chemical production grew for the seventh straight month in January. Chemical makers like Westlake supply materials to several key industries.
“With our operations restored in the middle of the fourth quarter, we were able to capitalize on the robust global demand and benefit from higher prices and margins for most of our products.” CEO Albert Chao in a statement.
He believes strength in global demand in polyethylene and PVC, coupled with the rise in housing starts and new building permits, will continue into 2021.
Discover Financial Services Stock
Discover Financial Services stock broke out of a cup-like pattern, but has slipped below its buy point of 101.06. It is now looking for support at its 50-day line. Volume was light on the breakout.
DFS stock previously found support at the 10-week moving average. However it has just surrendered both its 10-day line and its 21-day exponential moving average.
Most of the latest base formed above the 50-day moving average, which is positive. It is a second-stage base. Such early stage bases have a higher chance of success.
The Leaderboard stock has enjoyed a solid run-up from the 2020 coronavirus crash lows, rising as much as 349%. It is now looking to join other financial services stocks in rebounding.
It holds a Composite Rating of 63, which is not ideal. However its potential going forward is underlined by the fact big money has been snapping up the stock of late. In total, 56% of its stock is held by funds, with banks owning a further 2%.
Discover Financial is a credit card marketer also processes credit and debit card transactions. It operates through two segments: Direct Banking and Payment Services.
The company provides direct banking products and services, and payment services through its subsidiaries.
Further reopening of the economy is seen providing a big boost to its revenue sails.
While its top line has yet to rebound since Q1 2020, analysts see the bottom line jumping more than 150% this year to earnings of $9.28 a share.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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