These Are The 5 Best Stocks To Buy And Watch Now
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? Walt Disney (DIS), Microsoft (MSFT), Ford (F), Warren Buffet stock pick RH (RH) and MaxLinear (MXL) 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. However the current rally has been showing signs of weakness.
It is currently a time to be very careful about making any new buys, as well as to make a defensive game plan for each stock you own.
The pandemic remains a concern, though new coronavirus cases, hospitalizations and even deaths are falling sharply. The Democrats have just passed the $1.9 trillion coronavirus stimulus bill in the House. It will now go before the Senate.
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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 are coming under pressure after hitting all-time highs. They are either falling to or sunk below their 50-day moving averages. Many leading stocks, especially speculative growth names, have sold off hard in the past couple of weeks. Real economy names have fared better, though they too lost ground late last week.
With the current uptrend under pressure, be careful about opening new positions. It is also a good time to examine one’s portfolio, and formulate a defensive strategy in case the market continues to struggle. Also, identify actionable stocks for your watch list. This means you are ready if the market rallies once again.
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 Disney stock, Microsoft stock, Ford stock, RH stock and MaxLinear 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.
Disney stock is in buy range from a flat base after running past a buy point of 183.60. Shares reversed lower from a record high following strong quarterly results, however DIS stock showed strength as it rallied higher in later sessions. It had has slipped back slightly amid a broader pullback, but is holding above its buy point.
Its relative strength line recently spiked to a new high. Disney stock has an RS Rating of 78 out of a possible 99. Market performance is improving however, with Disney stock rising around 9% over the past four weeks.
Disney earnings have been badly hit by the coronavirus pandemic, with its EPS Rating slipping to very poor 10 out of 99. But this will improve as economies get back on their feet following broad lockdowns.
Wall Street is expecting full year earnings to fall 7% in 2021, before ramping up to 156% growth in 2022.
The Dow Jones giant showed it is bouncing back after crushing fiscal first-quarter estimates.
The surprise profit came as the number of streaming subscribers jumped. Disney+ subscribers climbed to 94.9 million as of Jan. 2, up 9% from 86.8 million on Dec. 2.
During the pandemic, the streaming service has been a bright spot for Disney stock, and big plans are ahead. The firm has surpassed 60 million Disney+ subscribers worldwide, and 100 million subscribers overall to its streaming offerings. Its brands include Hulu, ESPN+ and Disney+.
Disney CEO Bob Chapek said the new Star-branded streaming service will launch internationally Feb. 23. Star will be a sixth brand within Disney+ in some markets, joining the Disney, Pixar, Star Wars, Marvel and National Geographic brands. But it will feature edgier content from properties like FX and 21st Century.
At an investor day on Dec. 11, management said there are more than 100 titles in the works for Disney+. And Chapek said the company expects to have 230 million to 260 million Disney+ subscribers by 2024. That’s up from its prior estimate of 60 million to 90 million for the same time frame.
As coronavirus vaccinations pick up and the pandemic fades, Disney should see better revenue from theme parks and movies.
Microsoft stock has fallen below a 232.96 buy point, according to MarketSmith analysis, though it’s still above early entries around 227-228. Shares broke out in late January and hit a record 246.13 on Feb. 16 before pulling back. It has been finding support at its 50-day moving average, which is a positive sign. It’s been hitting resistance at the 21-day line.
The relative strength line for Microsoft stock had been showing signs of weakness following a spike. The RS line, the blue line in the charts below, tracks a stock‘s performance vs. the S&P 500. MSFT stock has gained more than 5% since the start of the year.
Microsoft is one of only four U.S.-listed stocks with trillion-dollar market caps, and is nearing $2 trillion. In this case big is beautiful as Microsoft stock has a strong, but not ideal, IBD Composite Rating of 86. The Composite Rating is designed to give an instant overview of a stock’s fundamental and technical performance.
A key to Microsoft’s high rating is its excellent earnings performance, which is reflected in its EPS Rating of 95. Microsoft earnings growth has accelerated for the past two quarters, reaching 34% in the most recent quarter.
Institutional investors are big backers of Microsoft stock, though its Accumulation/Distribution Rating has fallen back to C. This represents a balance of buying and selling. It boasts eight consecutive quarters of increasing fund ownership.
The software giant easily beat Wall Street’s targets for its fiscal second quarter thanks to growth from its cloud computing businesses. It also guided higher on current-quarter revenue.
Analysts see further growth. Full year EPS is expected to rise by 28% in 2021, and by 9% in 2022.
Microsoft‘s successful pivot into cloud computing has been driving growth. It has benefited from the work-from-home and learn-at-home trends during the Covid-19 pandemic. Microsoft‘s cloud software and services are aiding at-home workers and students.
“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” CEO Satya Nadella said.
Ford stock is just below a 12.14 buy point after clearing a three-weeks-tight pattern. It also came close to forming a flat base, but cleared the potential buy point of 12.25 too soon. Shares fell back late last week to 11.70 amid the broader market sell-off.
The RS line has been spiking following a brief dip. From a longer term perspective, it has been making progress, with periodic pullbacks, since May 2020.
Ford stock is currently up around 200% on its 12 month lows. This improving stock market performance has helped its Composite Rating improve a very strong 93.
Earnings are improving, but are lagging its price performance. This is reflected in its EPS Rating of 75.
Ford stock has been bolstered by the firm taking a more aggressive stance on investments in electric vehicles and other technology.
Spending in electric and autonomous vehicles will total $29 billion through 2025, more than double prior guidance of $11.5 billion. Of the $29 billion, Ford will spend $22 billion on EVs and $7 billion on autonomy.
The bigger amount even outpaces the $27 billion commitment from rival GM, which had already hiked it from $20 billion.
“We are accelerating all our plans – breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan,” CEO Jim Farley said when the firm posted earnings in February.
However, the company said chip shortages will hurt production and profit this year.
The iconic auto giant is ticking boxes for CAN SLIM investors, who look out for firms bringing new products to market.
Ford announced the immediate launch of the Mustang Mach-E electric crossover in Europe amid plans to go “all-in” on electric vehicles there. The new Mustang competes with Tesla’s Model Y.
It is also an investor in electric truck maker Rivian, whose shares could go public as soon as September and set a record for the biggest EV IPO.
Ford stock in February after it announced a six-year partnership with Google parent Alphabet (GOOGL) to develop more connected vehicles. The partnership will put Google apps and services into future Ford and Lincoln vehicles.
RH stock has been trading tightly, and is currently eying an entry point of 524.11. Shares are been holding above the 50-day line, which is a bullish indicator.
While its RS line has been relatively flat it remains near highs achieved earlier this year
A strong mix of earnings and price performance has earned RS stock a Composite Rating of 94. The stock is up almost 600% on its 12 month lows.
Earnings are key to RH’s strong performance. It boasts an EPS Rating of 97, with EPS growing by an average of 46% over the past three quarters. Earnings are also accelerating.
Big money is getting behind RH stock, which is a key consideration for the CAN SLIM cognoscenti. In total 98% of its stock is held by funds, and it boasts six consecutive quarters of increasing fund ownership. Warren Buffett’s Berkshire Hathaway (BRKB) is a noteworthy backer, and recently increased its stake further.
Formerly known as Restoration Hardware, RH sells upscale home furnishings through retail galleries in the U.S. and Canada, source books and online.
While the pandemic forced many retailers to close some stores and pare back planned openings, RH is forging ahead in more markets.
In July it opened a 60,000-square-foot location in Marin, Calif. The location included a rooftop restaurant. RH plans to open four new design galleries in North America in 2021 and is preparing a big push into Europe.
Meanwhile, RH plans to expand its brand beyond the $200 billion home furnishings and furniture market. It eyes the hotel business with new RH Guesthouses and the $1.7 trillion housing market with RH Residences.
RH stock was boosted as affluent homeowners spent heavily on revamping home offices and study spaces.
CEO Gary Friedman is bullish on the firm’s prospects going forward, even as the reopening of the economy offers more choice to consumers.
“It’s safe to assume that some level of elevated spending on the home will remain through 2021, and possibly beyond,” he said in December. “The booming real estate activity in second home markets, an accelerated shift of families moving to larger suburban homes, the uptick in homebuilding, and a record equity market should drive increased spending for an extended period of time as the cycle for purchasing and furnishing a home is anything but quick.”
MaxLinear stock is in buy zone after breaking out of a consolidation pattern, followed by some wild daily swings along with the market. The ideal buy point is 38.81.
The RS line for MXL stock has been rising of late, and has just hit a new high. This is an encouraging sign.
The stock boasts an RS Rating of 89, which puts it in the top 21% of stocks in terms of market performance over the past 12 months. It has been up by as much as 465% on its 12-month lows in recent sessions.
The stock boasts a near-perfect Composite Rating of 97. At the moment earnings are lagging stock market performance. However, EPS has been accelerating for the past three quarters.
MaxLinear is a provider of RF, analog, digital and mixed-signal integrated circuits. It is a supplier for the cable and satellite broadband communications and the connected home, and wired and wireless infrastructure markets. It is benefiting from the push for 5G adoption.
Earlier this month the firm posted an earnings beat. Revenue also came in above views, increasing 178% year-on-year to $194.7 million.
Last year the firm snapped up Intel‘s (INTC) Home Gateway Platform Division assets. The division’s products include Wi-Fi Access Points, Ethernet and Home Gateway SoC, which are supplied to the operator and retail markets. MaxLinear is also benefiting from last year’s acquisition of NanoSemi. Its technology enables higher throughput connections for 5G and Wi-Fi base stations and smartphones. It also reduces energy consumption
“In the fourth quarter, we posted record revenue, up 24% sequentially, due to stronger-than-expected demand for broadband access and connectivity products,” MaxLinear CEO Kishore Seendripu said in a news release. “The fourth quarter represented the first full of quarter of ownership of the Intel and NanoSemi assets, with which we are making tremendous progress on the respective integration efforts.”
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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