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? Boeing (BA), Floor & Decor (FND), Target (TGT) Scotts Miracle-Gro (SMG) and the VanEck Vectors Semiconductor ETF (SMH) 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 after several weeks of split market action. Last week the Dow Jones Industrial Average and the S&P 500 rose to fresh all-time highs. The Nasdaq is also making progress by pulling further clear of its 50-day line.
The coronavirus pandemic remains a concern, but vaccinations are ramping up. President Joe Biden has signed the $1.9 trillion coronavirus stimulus bill. Fed Chairman Jerome Powell has said that the central bank is committed to an “all-in” approach as it tries to nurse the economy back to health.
There are concerns that aggressive fiscal and monetary policy could spur too-much inflation and hurt stock prices long-term.
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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 rallied strongly after recent pressure. The S&P 500 and Dow Jones have just reached new heights, while the Nasdaq is pulling away after clambering back above its 50-day moving average.
It is now is a good time to get back into the market and buy fundamentally strong stocks coming out of proper chart bases.
And while this is no longer the powerful, growth stock rally of 2020, 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 Boeing stock, Walt Disney stock, Target stock, Scotts Miracle-Gro stock and SMH 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.
Boeing stock is in buy range after reclaiming a 244.18 entry point, MarketSmith analysis shows. Shares have found support at their 21-day moving average as they work on a new consolidation just above the prior base.
The relative strength line has also levelled off somewhat after a recent decline. This is a key gauge that compares a stock’s performance to the S&P 500. Boeing stock is up almost 18% so far in 2021.
However there are still significant fundamental challenges, which is why the stock has a poor IBD Composite Rating of 39. Earnings are the key weakness, with its EPS Rating sitting at an abysmal 5 out of 99.
Big money is backing the stock however. Institutional investment is a key gauge for the CAN SLIM cognoscenti, as professional investors account for about 75% of all market activity. Boeing stock scores highly here. Its Accumulation/Distribution Rating of A- represents heavy buying among institutions over the past 13 weeks.
Boeing stock was hit badly by the 737 Max scandal. They jet was grounded after 346 people were killed in two deadly crashes. However it is starting to recover. Analysts see the firm posting a loss of three cents per share in 2021, before bouncing back with EPS of $5.42 in 2022.
Boeing is a play on the improving economy. Travel stocks have been continuing to recover from lows as the coronavirus pandemic eases. Airlines have been making orders as they look to improve their fleets.
Southwest said it would add 100 orders for the Boeing 737 Max 7. The first 30 of those are scheduled to be delivered next year. The Max 7 has fewer seats than the Max 8 but a slightly longer range.
The carrier also converted 70 Max 8 firm orders to Max 7 orders. And it added 155 options for the Max 7 or Max 8 for 2022 through 2029.
The changes, in total, will give Southwest 349 Max orders and 270 options for Max 7 or Max 8 aircraft for 2021 through 2031.
The carrier will also speed the retirements of its 737-700 aircrafts. The deal between the airline and the jet maker comes as the 737 Max begins to return to the skies, after the U.S. and other nations grounded the plane in 2019 following two fatal crashes.
However the stock took a dip Friday after it emerged that a production issue led to airlines pulling some 737 Max jets from service. The aerospace giant has recommended customers fix a “potential electric issue” on certain 737 Max jets before returning them to service
Floor & Decor
The flooring retailer touched new heights as it made its bullish move. The base also can be interpreted as a cup base with a 108.14 buy point or possibly 108.64, and the stock is in buy range from those entries.
The RS line for FND stock is looking bullish, and has been spiking higher since early April. So far in 2021 it is up around 17%. This beats the S&P 500’s gain of just over 11%.
The stock was added to Leaderboard on April 9 due to its bullish action. It holds a very strong IBD Composite Rating of 94. Strong earnings are its key attribute, though stock market performance is also good.
Housing-related retail stocks have been market leaders over the last several weeks.
Floor & Decor has benefited from consumers investing in their homes among coronavirus lockdowns. Over the past three quarters earnings have grown by an average of 42%. This beats the 25% growth sought by CAN SLIM connoisseurs over this period of time.
However analysts believe earnings growth will continue. Full year EPS is seen jumping 29% in 2021, and swelling by a further 26% in 2022.
The Atlanta-based retailer operated 133 warehouse-format stores and two design centers across 31 states at the end of Q4. It specializes in hardwood, tile, wood and natural stone flooring. Floor & Decor also offers decorative accessories and installation services.
Back in February it reported Q4 results that topped views. It opened five warehouse stores during the quarter. It expects to open seven stores in the current quarter.
“Driven by strong transactions and broad-based regional and category growth, our fiscal 2020 fourth-quarter comparable store sales increased 21.6%, the strongest quarterly growth rate of the year,” CEO Tom Taylor said on the earnings call. “For the full year, our fiscal 2020 comparable store sales increased 5.5%, a significant achievement considering the impact of the Covid-19 pandemic on our store operations beginning in late March.”
Target stock is at the top of its buy zone after breaking out of a double-bottom base. The ideal buy point here is 196.35. The stock aggressively sprinted away from its 10-week line as it broke out.
In fact TGT stock has broken clear of all its major technical benchmarks, including its 21-day exponential moving average.
The RS line offers further reasons for enthusiasm among Target investors. It had been spiking higher, and if it takes off again could soon hit a new high. So far this year Target stock is up almost 17%.
Target stock has a good Composite Rating of 83, putting it in top 17% of stocks tracked. Earnings in particular are a strength, with EPS rising by an average of 83% over the past three quarters. Earnings rose by a less impressive, but still strong, 58% in the most recent quarter.
Its strong performance has shot Target stock to the top of the Retail-Major Discount Chains Industry Group
Institutional sentiment is also strong. It holds an Accumulation/Distribution Rating of C . This reflects moderate buying among institutions.
In total, 39% of all stock is held by funds, with a further 2% being held by banks. Notable holders include the Fidelity Select Retailing Portfolio Fund (FSRPX), which ranks as one of the very best funds according to IBD research.
Target recently announced it will invest $4 billion a year for several years to accelerate its shift to e-commerce
During a virtual investor day, management said the massive investment campaign would include 30-40 new stores each year, new distribution centers and technology aimed at speeding up shelf restocking.
Target will also test new package-sorting hubs and look for ways to design more efficient delivery routes.
The company’s focus on revamping its stores to serve more as fulfillment centers for online orders was well under way before Covid-19 hit. It is working to regain market share lost to online retail giant Amazon (AMZN).
Scotts Miracle-Gro Stock
Scotts Miracle-Gro stock is just below buy range after breaking out from a 238.91 cup-with-handle base. On a weekly chart, SMG stock is just below a 250.10 cup-without-handle entry.
The relative strength line for Scotts Miracle-Gro stock had been recovering strongly from recent dip, however it has lost some momentum. It comes after it recently hit a new high, which is a bullish sign for its breakout.
So far in 2021, the stock is up around 19%. This is well clear of the S&P 500’s performance.
SMG stock has a good balance of earnings and price performance. This has earned it a top notch Composite Rating of 96. This puts it in the top 4% of stocks tracked.
Scotts Miracle-Gro stock is particularly noteworthy for marijuana enthusiasts. The lawn care specialist has been investing in R&D for better plant genetics and nutrient formulations for both cannabis and hemp plants.
Last week, the company raised estimates, citing stronger-than-expected sales for its lawn care division and its cannabis-focused Hawthorne division.
SMG took part in the marijuana stock rally that followed the Jan. 5 runoff elections in Georgia, granting a de facto majority in the U.S. Senate to the Democratic Party.
Big money is getting behind SMG stock, though its Accumulation/Distribution Rating has cooled to C. The Federated Hermes Kaufmann Fund (KAUFX), rated as one of the best funds by IBD, is a noteworthy holder. In total, 49% of its stock is held by funds.
Management holds a further 27%. A large management stake in a company is often seen as a sign of strong future prospects.
As the economy reopens, demand for semiconductors is only going to rise. A large and growing number of chip-equipment and semiconductor makers have broken out in the past few weeks. Rather than try to pick a winner, and take on company-specific risk, you can get broad exposure by buying shares of the VanEck Vectors Semiconductor ETF.
SMH is consolidating just below a 258.69 buy point in a cup base.
The RS line is picking up steam again following a dip. It has been outperforming the S&P 500 since mid-March. Overall the SMH ETF has gained more than 16% since the start of 2020. This is better than the S&P 500’s gain of around 11%. Its RS Rating of 72 puts it in the top 28% of stocks tracked.
Institutional support is a good way to gauge the prospective fortunes of an ETF. Here SMH scores with an Accumulation/Distribution Rating of B.
It also holds a Sponsorship Rating of A. This unique rating helps investors know if a stock is owned by the better performing mutual funds, and if more mutual funds have bought the stock recently. The Berkshire Focus Fund (BFOCX) is among the best funds to currently hold SMH stock.
Chip stocks have been the big story in the Nasdaq’s recovery. Many names in that sector made strong moves in the shortened trading week, during which SMH stock notched a 4.3% gain.
Evercore ISI analyst C.J. Muse highlighted that chipmakers are seeing rising earnings estimates. He has predicted a “decade-long investment cycle ahead as semiconductor manufacturing moves to a strategic national priority in both the U.S. and Europe.”
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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