Alphabet (GOOGL), Microsoft stock, Lam Research and Taiwan Semiconductor are all on IBD Leaderboard, a curated list of stocks with the most potential for big gains. Google stock also is on IBD SwingTrader. MSFT stock is on IBD Long-Term Leaders.
The big tech stocks drove Friday’s stock market action — helping to lift the S&P 500 index to highs and the Nasdaq above its 50-day average.
The relative strength line for Lam Research stock made a fresh high Thursday as the stock broke out, a bullish sign. The RS lines for the other stocks to watch are near highs.
A rising RS line means a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.
Stock Market Rally: Watch The RS Line
The relative strength line is a quick way to spot winners in any market — up or down.
The Relative Strength At New High stocks list is a great place to look for quality names with strong RS lines. IBD’s stock research platform MarketSmith has a screening tool that identifies stocks with RS lines making new highs.
In addition, the best growth stocks have an IBD Composite Rating of 90 or better.
LRCX stock leads this group with a perfect Composite Rating of 99, followed by Google with a 95, Facebook with a 92 and Taiwan Semiconductor with a 91. Microsoft trails with a 73. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
Alphabet shares rose 5.2% on the week, after rebounding off the 21-day exponential moving average and 10-week line.
The Google parent is just 1% below a flat-base buy point of 2145.24. But the rebound from the 10-week line and the 2,114 area were among early entries for aggressive investors, according to MarketSmith chart analysis. The official entry is just above the mid-February all-time high.
The RS line for GOOGL stock has pulled back a bit from the record high in early March.
The tech giant has an IBD Relative Strength Rating of 68. That means it has outperformed 68% of all stocks over the past 12 months.
Alphabet earns an EPS Rating of 93 out of a best-possible 99. Earnings per share growth averaged 18% over the past five years, below the 25% or higher you would want to see. But in the latest quarter, Google earnings rose 45% as sales growth accelerated from 14% to 23%, the best in at least eight consecutive quarters. Its core search advertising business drove gains.
Google stock should continue to benefit from a rebound in digital advertising as coronavirus vaccinations expand. Stock buybacks are another bright spot. Cloud computing holds promise, but remains unprofitable for now.
The tech and cloud giant gained 2.5% on the week to 242.35. MSFT stock had been hitting resistance at the 240 level. Clearing that, along with the rebound from the still-close 10-week line, offer a buying opportunity. Microsoft stock is 2% below an official 246.23 flat-base entry.
MSFT stock owns a superior EPS Rating of 95 but a poor RS Rating of 40. Microsoft grew earnings 19% annually over the past five years. But in the latest quarter, Microsoft earnings accelerated to 34% from 32%, while sales sped up to 17% from 12%, the highest sales growth in at least eight quarters.
Microsoft has benefited from remote working and learning due to the Covid-19 pandemic. The trends spurred an increase in PC buying. Also, Microsoft’s cloud software and services underpin the shift to remote learning and working.
Last week, Microsoft won a U.S. Army contract that could be worth $22 billion to supply augmented reality gear.
Shares climbed 5.5% on the week. Facebook stock is just below a 299.81 buy point, briefly clearing that on Thursday.
Facebook has a 93 EPS Rating and 54 RS Rating. The social network grew earnings 37% on average over the past five years. In the latest quarter, earnings growth accelerated to 52% from 13% the prior quarter, as sales growth sped up to 33% from 22%.
Like Google, Facebook stock is poised to benefit from growth in digital advertising.
Lam Research Stock
The chip equipment maker popped 9.4% on the week, bouncing off the 10-week line. Lam Research stock jumped 7.4% on Thursday to 639.30, clearing a 603.70 buy point. Lam stock is slightly extended from the 5% chase zone, which runs to 633.89. But a mild pullback could easily push the stock back into buy range. The RS line made a high along with LRCX stock, a bullish sign.
President Joe Biden’s infrastructure plan, with incentives for domestic chipmakers, gave chip stocks a boost. Strong Micron Technology (MU) earnings also are good news for LRCX stock and other chip-gear makers.
Lam Research stock sports a 96 EPS Rating and 85 RS Rating. Earnings growth averaged 26% over the past five years. While growth slowed in the latest quarter, it still came in at a strong 51% for earnings and 35% for sales.
Taiwan Semiconductor Stock
TSM stock gained 7.1% to 124.80 for the week, including 5.5% on Thursday. Taiwan Semiconductor stock is just above its 50-day and 10-week lines as it starts to build the right side of a base. Aggressive investors could take a pilot position here.
TSM stock earns an 88 EPS Rating and 81 RS Rating. Earnings growth averaged 10% over the past five years. It ranged from 19% to an impressive 95% over the last five quarters, though it decelerated to 31% in the most recent quarter.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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