With the Nasdaq composite at one point in June sinking almost 35% below a 16,212 peak set last November, some investors may think now is a time to buy. But among thousands of stocks, where should they start? This story showcases five Nasdaq stocks to buy or at least consider watching right now.
If you want to achieve market-beating returns, first do this. Reserve your precious capital for just companies with truly strong fundamentals. This means aiming at Nasdaq-listed companies with outstanding records of profit growth, return on equity, profit margins and sales increases. These factors make up both the C and the A in CAN SLIM, IBD’s seven-point investing paradigm.
Second, seek only those Nasdaq stocks that outperform the rest of the pack. If you confine your search to those stocks whose price performance proves superior to at least 80% or 90% of the entire market or more on a rolling 12-month basis, then you’re really focused on stocks that have the potential to break out to new highs and make major price runs.
Third, get on the side of institutional investors that are actively accumulating shares over months and even years. Their long-term power on Wall Street can never be overstated. IBD’s Accumulation/Distribution Rating will help investors in that regard. Monitor the quantity and quality of institutional ownership; this helps you assess the I in CAN SLIM.
Nasdaq Stocks To Buy: Screening For Winners
To select five stocks, MarketSmith screener allows users to pick companies within IBD’s database that rate highly in terms of Earnings Per Share Rating, Relative Strength Rating and SMR letter grade, which stands for sales, profit margins and return on equity. A simple screen set up on MarketSmith demands that stocks show an 85 EPS score or higher, at least an 85 for RS, and an A grade (on a scale of A to E) for SMR.
Stocks with an Accumulation/Distribution Rating of lower than B didn’t make the cut. This rating analyzes price-and-volume action in a stock over the past 13 weeks. An A or B grade indicates fund managers are net buyers of the stock. A C grade points to a neutral amount of institutional buying vs. selling.
Finally, each stock had to hold a 95 Composite Rating, which combines all of IBD’s key ratings with recent price action.
5 Nasdaq Stocks: No. 1
Amid the bear-market decline, just 26 companies currently make the cut. That’s up from 15 two weeks earlier. If the market continues to rebound, this screen should see more stocks. For now, we highlight some notable fundamental, technical and mutual fund ownership elements for each stock as follows.
Paylocity shares ran past its 200-day moving average, a bullish sign. Watch to see if it hold Friday’s positive gap, then move closer to a complete base.
The high of this base, 314.50, plus a dime gives a tentative entry of 314.60.
However, days and weeks of tight action may lead to a handle on the long pattern and a lower buy point.
A handle pinpoints a final shakeout of uncommitted shareholders in leading Nasdaq stocks to buy and watch. It also clears the deck for a potential big move up as institutions seek shares in a big way.
The payroll software firm’s June-ended fiscal fourth-quarter profit soared 74% to 80 cents a share on a 37% rise in revenue to $229 million. Those year-over-year gains showed acceleration from 39% EPS growth and a 32% jump in the top line in the March-ended fiscal third quarter.
Wall Street, in turn, has boosted its fiscal 2023 earnings estimate to $3.63 (up 12%) and $4.55 (up 25%) for FY 2024.
PCTY’s RS Rating is now robust at 94. And the 98 Earnings Per Share Rating rocks; it means Paylocity shows stronger profit growth than 98% of all companies in the IBD database.
Consumer Spending Themes
Nasdaq Stocks To Watch, No. 2: International Money Express (IMXI) struggled on its breakout on May 4 in a base-on-base construction. Shares surpassed a 22.08 prime entry, but finished well below it the same session. Then IMXI lost support at the 50-day moving average.
IMXI made a brief drop below this timely entry, then bounced hard enough to jump out of the 5% buy zone for the second time since early July.
At Wednesday’s close of 24.99, International Money is now definitely extended past the buy zone, having gained more than 16% from the 21.48 breakout point. It’s important not to chase stocks beyond this buy zone. So at this point, watch for a new base to form, or for the stock to test the 50-day moving average or 10-week line in a normal pullback. Such action may lead to a new follow-on entry point.
Earnings per share have grown 39%, 25%, 33% and 26% vs. year-ago levels. The top line expanded 37%, 26%, 28% and 21% over the same time frame. Sales also topped $100 million on a quarterly basis for four quarters in a row.
The number of mutual funds owning stock in the Miami-based specialist in money transfer and remittance services has increased for at least seven straight quarters, to 304 at the end of the second quarter this year from 149 in Q2 of 2020.
International Money Express hosts a 97 Composite, a 96 EPS and 97 RS. Few strong Nasdaq stocks are hailing from the financial services sector.
Stock No. 3: Telecom Sector Leader
Stock No. 3: Clearfield (CLFD) carved a wide-and-loose cup with handle of its own. This means that volatility is exceptionally high, making it tougher to make profits on the future breakout. According to MarketSmith, CLFD holds an extremely high beta of 2.14.
Nonetheless, the IBD-style buy point for now is 69.34 in a cup with handle. And in the week ended July 15, shares vaulted past this entry, staging a breakout. Volume jumped vs. the prior week, and ended above the stock’s average trading over the past 10 weeks. CLFD has gotten well extended, meaning it no longer trades within the 5% buy zone.
Due to the solid weekly action, Clearfield’s ratings jumped to a 99 Composite, 99 EPS and 99 RS. The relative strength line made new highs, a strong sign of outperformance. The Accumulation/Distribution Rating improved to an A, a bullish sign.
Great breakouts occur in heavy volume, especially on the actual breakout day itself. But they also tend to succeed when the prior price action is tight and controlled. This indicates few willing sellers are hanging around the stock.
Just look at Clearfield’s tight weekly action seen in the last week of June 2020 and the first three weeks of July before CLFD leapt 24% in massive turnover during the week ended July 24.
That’s a massive breakout.
The maker of fiber optic telecom equipment and components is rare in its sector. Fundamentals are very strong.
Earnings per share have catapulted 120%, 57%, 475%, 440%, 100%, 141%, 226% and 144% vs. year-ago levels in the past eight quarters. Analysts surveyed by FactSet see the bottom line soaring 86% in fiscal 2022, ending in September, to $2.74 a share.
Sales have lifted 19%, 14%, 40%, 45%, 49%, 66%, 89% and 80% in the past eight quarters. Shares surged more than 16% on July 29 after the company posted a 109% boost in earnings to 92 cents a share on an 84% sales increase to $71.3 million.
Nasdaq Stocks To Buy And Watch: Final Two
Stock No. 4: Ulta Beauty (ULTA) staged a bullish breakaway gap twice in a row on May 26 and 27 after a robust earnings report.
Great stocks ascend past their 50-day moving average before staging a breakout. ULTA is doing the opposite for now. And Wednesday’s gap down for a 5% loss is a setback.
What about the handle that began forming on May 31 and generated a 426.93 buy point? It yielded a June 8 breakout that lasted only a day.
Ulta’s bottom line bulged 54% to $6.28 a share as sales rose 21% to $2.35 billion. That 21% increase came on top of a 65% revenue boost in the year-ago quarter.
The cosmetics, hair care and personal care products retailer enjoyed a tremendous run and helped lead the market out of the ashes of the 2008-2009 Great Recession.
Ulta owns an 87 Composite Rating, which has withered from a 96. So, this stock will likely get replaced soon. ULTA also scores a good 90 EPS Rating and a mediocre 72 for the Relative Strength Rating.
Institutional ownership is rising. At the end of Q2 this year, 1,968 mutual funds held shares, up 6% from the end of 2021.
Plus, fund ownership has risen every quarter since the fourth quarter of 2020 (when it was 1,468).
Five Nasdaq Stocks To Buy And Watch: No. 5
For instance, the handle within the base shows a decline of almost 15% from head to toe (using intraday high and intraday low). You’d normally like to see the handle make a correction of no more than 8% to 12%, especially since the correction within the pattern exceeds 25%.
The correct buy point, for now, stays at 204.47. Drawing a trendline across the base’s highs may offer a lower entry point near 195.
LPL is having a good week so far, up 3.4% after reporting Q2 results (EPS up 21%, revenue up 7%). At 217.06, shares have climbed 6% past the current buy point of 204.47.
Another point of concern? Within the current pattern, all of the biggest weeks in terms of volume came on down weeks in price. However, the week ended June 3 saw LPLA shares fall a trifling amount, even as turnover exploded to 7.59 million shares. That suggests institutional support. A chartist may even view that week’s action as a support week.
Also, the relative strength line has jumped into new highs, signaling strong outperformance vs. the S&P 500.
Earnings estimates are superb. The Street sees profit rising 38% this year to $9.66 a share, then vaulting 61% to $15.51 a share next year. Both consensus estimates recently got a boost.
The financial advisory giant boasts a five-year EPS growth rate of 28%. Sales have shown a growth acceleration phase since the second quarter of 2020, going from a 2% dip that quarter to gains of 3%, 9%, 17%, 39%, 38%, 32% and 21%.
LPL shows a 95 Composite score and a 96 Relative Strength Rating.
The relative strength line has triggered a bullish signal, the MarketSmith RS line blue dot.
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