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? Merck (MRK), Exxon Mobil (XOM), CF Industries (CF), Broadcom (AVGO) 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 continues 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. The market tried to rally but has just fallen back into correction territory. The S&P 500, the Nasdaq and the The Dow Jones Industrial Average all hit 52-week lows last week, though they moved off lows Friday.
The market is in bad shape. This means you should avoid buying stocks altogether. Instead, it is a good time to start raising cash — 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. You also move entirely off margin.
But you should stay engaged with the market and get to work on building a robust watchlist. Looks for stocks contracting less than others or less than the main indexes. These will tend to have rising relative strength lines. The names below are good candidates.
Remember, there is still significant headline risk going forward. Inflation remains a key issue while the Russia-Ukraine conflict is a wild card that has proved its ability to shake the market.
But 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
- Exxon Mobil
- CF Industries
- Dollar Tree
Now let’s look at Merck stock, Exxon Mobil stock, CF Industries stock, Broadcom stock and Dollar Tree stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
The relative strength line has already hit a 16-month high.
The stock currently boasts outstanding all-around performance. This is reflected in its near-perfect IBD Composite Rating of 98.
Big money has been snapping up the stock of late, which is why it holds a powerful Accumulation-Distribution Rating of A.
Earnings in particular are a strength, with its EPS Rating coming in at 93 out of 99. Nevertheless, the stock is up around 21% over the past 12 months.
The stock was boosted following its latest earnings report. Merck earned $2.14 per share, minus some items, on $15.9 billion in sales. Earnings soared 84% and beat analysts’ call for $1.83. Sales were $15.9 billion, up 50% year over year. Merck stock analysts expected $14.56 billion, according to FactSet.
Excluding the impact of exchange rates, earnings and sales popped a respective 89% and 52%.
Merck’s biggest moneymaker, cancer treatment Keytruda, raked in $4.8 billion. Its sales advanced 23%. Human papillomavirus vaccine Gardasil generated $1.5 billion in sales, up 59%. In constant currency, Keytruda sales rose 27% and Gardasil sales rocketed 60%.
The Ridgeback Biotherapeutics-partnered Covid-19 treatment called Lagevrio generated more than one-fifth of Merck‘s sales during the quarter. It rivals Pfizer‘s Paxlovid. Overall sales surged by half in the first quarter. Excluding Lagevrio’s impact, Merck reported 19% sales growth.
Now, the recent IBD Stock Of The Day expects the Covid pill to bring in $5 billion to $5.5 billion in full-year sales.
For the year, Merck now expects to earn $7.24-$7.36 per share on $56.9 billion to $58.1 billion in sales. At the midpoints, both metrics are above Merck stock analysts’ forecast for adjusted earnings of $7.28 a share on $57.25 billion in sales.
Exxon Mobil Stock
Exxon Mobil stock is also worth considering. It previously managed to break above a cup-with-handle base buy point of 89.90 buy point, according to MarketSmith analysis. It currently sits in the buy zone just above this level.
In addition, the relative strength line sits near new highs, an encouraging sign.
XOM stock has a perfect Composite Rating of 99. Stock market performance is increasingly bullish, with the stock rising 43% since the start of the year.
Improving earnings performance gives added credibility to a bullish outlook on Exxon Mobil stock. The most recent quarter saw earnings per share jump by 218%, its second straight profitable quarter following the Covid pandemic.
Oil prices have surged in recent months as the West turns away from Russian supply.
After spiking above $120 a barrel, crude briefly retreated below $100. U.S. crude oil futures are back to $110.
The stock held up despite a recent earnings miss. Exxon earnings per share jumped to $2.07 a share while analysts polled by FactSet expected EPS of $2.20.
Revenue was better than expected though, jumping 53% to $90.5 billion. Wall Street expected revenue of $82.838 billion.
The Q1 EPS excludes $3.4 billion, or 79 cents per share, related to Exxon’s planned exit from the Russia Sakhalin-1 project as a result of the Ukraine war.
Another booster for the stock is the fact management hiked its stock buyback program to as much as $30 billion through 2023.
The firm resumed buybacks in January, announcing $10 billion at the time.
Capex totaled $4.9 billion for the quarter, in line with its full-year guidance of $21 billion to $24 billion.
On April 26, Exxon said it hiked its recoverable resource estimate for its Stabroek Block in offshore Guyana to 11-billion oil-equivalent barrels, thanks to three new discoveries at the site. The previous estimate was for 10 billion barrels.
But Exxon, like other oil companies, is appealing to ESG investors by earmarking funds to develop new business models to address climate change.
Exxon has announced $15 billion in investments in its Low Carbon Solutions business.
CF Industries Stock
CF Industries just rebounded from its 50-day line. This can be used as a buying opportunity for aggressive investors. On May 13, shares briefly broke a trendline from the April 13 peak of 113.49, offering another early entry.
After a huge run, CF and other fertilizer stocks pulled back in April to around their 50-day lines.
The relative strength line for CF Industries stock is sitting near a 52-week high. In fact, the RS line has risen to a nearly seven-year high though it remains below all-time highs, according to MarketSmith chart analysis.
CF Industries stock ranks No. 1 among the IBD 50 list of top growth stocks.
On May 4, CF disclosed that profits soared 526% in the March quarter while sales surged 174%, accelerating from a 131% gain the prior quarter.
Analysts polled by FactSet forecast CF earnings per share will nearly triple in all of 2022 as sales leap 78%. In 2023, both CF’s earnings and sales are seen falling by double digits.
CF stock boasts five quarters of rising fund ownership, according to the IBD Stock Checkup tool. As of March, 1,730 funds owned CF Industries stock, up from 1,344 funds in March 2021.
The agricultural chemicals industry group ranks a dazzling No. 3 out of 197 industry groups tracked by IBD.
Fertilizer companies produce a vital product with durable demand, especially amid the ongoing Russia-Ukraine crisis. Both of these countries are key exporters.
CF Industries is the world’s largest ammonia producer, Green hydrogen and ammonia are key elements as companies and countries alike try to move toward net-zero carbon emissions.
By 2050, hydrogen will meet 20% of the world’s energy needs, according to some forecasts. That would be up from less than 1% today. Ammonia is three parts hydrogen and one part nitrogen. It’s used as a means to transport hydrogen, as well as being a fuel in its own right, CF says.
Deerfield, Ill.-based CF Industries produces 10 million tons of ammonia per year and nearly 2 million tons of hydrogen annually.
Broadcom has a cup-with-handle base with a 645.41 buy point, according to MarketSmith analysis.
More adventurous investors could use a move above the 50-day line as an early entry as it would coincide with breaking a downtrend.
The relative strength line line for AVGO stock has just hit a new high, which is a key positive.
Broadcom makes wireless chips for smartphones. It also makes semiconductors for broadband communications, networking, storage and industrial applications. Plus, Broadcom has a growing business in infrastructure software for mainframes, data centers and cybersecurity.
Semiconductor products accounted for 76% of Broadcom’s revenue in the first quarter. Infrastructure software contributed 24% of sales.
The San Jose, Calif.-based chipmaker forecast accelerating sales growth in the current quarter when it delivered a beat-and-raise report for its fiscal first quarter.
Broadcom earned an adjusted $8.39 a share, up 27% year over year, on sales of $7.71 billion, up 16%, in the quarter ended Jan. 30.
For its fiscal second quarter ending May 1, Broadcom predicted sales of $7.9 billion, up 20% year over year.
Broadcom is scheduled to release results for its fiscal second quarter on June 2. FactSet’s consensus shows analysts expect it to report earnings of $8.71 a share on sales of $7.9 billion. For the year, analysts expect earnings of $35.60 on sales of $32 billion.
Institutional investors own 55% of Broadcom shares outstanding. American Funds and Vanguard are the biggest funds holding the chip stock in their portfolios.
Piper Sandler analyst Harsh Kumar rates Broadcom stock as overweight, or buy, with a price target of 750.
“Broadcom is benefiting from upgrades in several of its end markets, including hyperscale, cloud, enterprise, wireless, and storage,” Kumar said in a recent note to clients. “At a broad level, demand and orders appear to be extending into the first half of calendar 2023.”
Dollar Tree Stock
DLTR stock has pulled back to its 50-day line. A strong bounce above the 50-day, breaking above a down-sloping trend line, would be actionable. Dollar Tree stock is also on track to have a new flat base in another week.
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 is near highs.
Institutional buying has been picking up in recent weeks, which is a good sign going forward. It boasts a solid Accumulation/Distribution Rating of B-.
The Stock Checkup Tool shows Dollar Tree earnings have been hit by the coronavirus pandemic, slipping 22% over the past three quarters.
Analysts expect Dollar Tree earnings jump 37% growth in the current fiscal 2023 before moderating to 13% growth in 2024.
The firm is set to report earnings on May 26. An approach highlighted by Investor’s Business Daily is to use options as a strategy to reduce risk around earnings. It’s a way to capitalize on the upside potential of a stock’s move around earnings, while reducing the downside risk.
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.
Former Dollar General CEO Rick Dreiling has since been appointed as executive chair. Following the move, Loop Capital analyst Anthony Chukumba upgraded DLTR stock to buy from hold, boosting his target to 200 from 140. He wrote that Dreiling will “dust off the Dollar General playbook.” at Family Dollar.
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.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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