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? Apple (AAPL), Deere (DE) Datadog (DDOG), Wyndham Hotels (WH) and Brown & Brown (BRO) are prime candidates.
Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflected rising confidence that the economy will eventually recover from the coronavirus.
But 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. Rising tensions in Ukraine are also weighing 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. And while the market has attempted to rally, action remains uncertain. The Nasdaq, S&P 500 and the Dow Jones Industrial Average are currently trading beneath the key 200-day moving average.
With the current outlook uncertain investors should stop buying stocks, aside from exceptional breakouts in exceptional stocks. It is not the time to be adding shares to existing holdings. Getting off margin would be a solid move as well.
Investors should be taking some profits. Target stocks that recede after they’ve rallied 20% or more from buy points.
Sell signals must be followed strictly to avoid painful losses. Consider selling stocks that are less than 7% below the purchase price. With stocks that have been rising above their 50-day or 10-week moving averages, beware of sharp breaks below those lines.
Veteran growth stock investors have likely kept a lot of their powder dry. The market still has a scarcity of outstanding breakouts from stocks with true CAN SLIM fundamentals.
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
- Wyndham Hotels
- Brown & Brown
Now let’s look at Apple stock, Deere stock, Datadog stock, Wyndham Hotels stock and Brown & Brown 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.
AAPL stock has formed a new consolidation pattern. The ideal buy point here is 183.04, according to MarketSmith analysis. It is also offering up a lower handle entry of 176.75. AAPL stock fell below its 50-day line on Friday.
Apple stock is seeing its relative strength line hold around new highs, a sign of how bad the broader market sell-off has been. Stocks with strong RS lines during choppy market can be among the first to break out during an uptrend.
Apple stock has seen its Composite Rating shoot up to a very strong 95 out of 99. Apple became the first company to reach a market capitalization of $3 trillion last month, though it has now backed off this level.
The IBD Stock Checkup tool shows earnings growth is bouncing back in recent quarters following the Covid-19 pandemic. Apple stock got a boost after reporting earnings for Q1 of fiscal 2022.
It was the firm’s best ever quarter for revenue, with all categories excluding iPads coming in above views. Apple did not give guidance for the current quarter, though executives were relatively upbeat. The firm has not given specific quarterly guidance since the Covid-19 pandemic began.
Apple‘s EPS growth has averaged 65% over the past three quarters. This is comfortably clear of the 25% earnings growth sought by the CAN SLIM cognoscenti.
Analysts see earnings growth of 8% growth in fiscal 2023. Investors will want to see CEO Tim Cook squeeze out more impressive gains.
With its iPhone business maturing, investors are looking for a new big growth driver for Apple stock. Services and wearables are seen as two key drivers.
In the September quarter, Apple’s services revenue rose 26% year over year to $18.3 billion. Services include the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
One reason to be bullish on Apple is it continues to produce new products, which is a major success factor in the CAN SLIM system.
Speculation is reaching fever pitch that Apple is looking to make a self-driving electric car. In November Bloomberg reported Apple is aiming to launch self-driving EVs in 2025.
Deere stock is in the buy zone after breaking past a cup with handle buy point of 388.20. The tractor stock has been plowing ahead, rising just over 6% last week.
But investors should be cautious with new buys with earnings looming.
It showed strength by fighting back after testing support at its 50-day and 200-day moving averages. It had previously flexed its muscles by rebounded back above the key levels in high volume.
The fact it is managed to pull away from these key levels once again suggests is sowing the seeds for future success. But the fact earnings are due Friday is a reason to be cautious.
Its relative strength line has been spiking up as shares rebounded but has some work to do to reach 12-month highs. A positive report could propel it higher.
The recent IBD Stock of the Day has posted five straight quarters of earnings growth, four of them triple-digit gains. The Moline, Ill.-based company also reported four quarters in a row of revenue increases.
Deere is reporting earnings Feb. 18. FactSet analysts expect earnings to tumble 41.8% year over year to $2.25 a share, while revenue edges up 1.8% to around $8.2 billion.
Looking further ahead, the firm is expected to see full year EPS rise 14% in 2023.
Deere’s fully autonomous tractor uses hybrid technologies including cameras, GPS and various AI programs. The goal is to give farmers the ability to put the tractor to work and go do something else, whether it’s milking cows, stuffing scarecrows or even working off the farm.
“Overall, we viewed the event as a positive for DE, as it has the potential to offer significant SaaS/recurring-revenue opportunities that could offset some of the potential impact of long-term Ag trends away from grains,” D.A. Davidson analyst Michael Shlisky said in a research note.
Meanwhile, inflation in the costs of labor, land, chemicals, or other inputs could curb farmers’ ability to spend on equipment, such as Deere machinery. Higher interest rates, which the Fed seems poised to implement, also will make it more expensive for farmers or other key end-users to purchase Deere equipment.
If interest rates do rise, Deere’s “sales and earnings could fall short of expectations,” Shlisky wrote. “In addition, higher rates could lead to more past-due or defaulted equipment loans for DE.”
Datadog now has a deep cup base with a 199.78 buy point. The base shape here is not ideal, and features elements of a double-bottom.
The stock came close to its recent December highs last week. Ideally, DDOG stock would form a handle near the current levels.
In addition the relative strength line reached new heights Thursday, a noteworthy achievement considering the tough environment for high P-E stocks.
It has held up well in comparison to other software names and managed to hold support around its 200-day moving average.
Datadog stock has a high price-to-earnings ratio of 324, which could be problematic amid a rising rate environment. As rates rise, investors discount future earnings more.
But that has not dissuaded institutional investors from buying shares. In recent weeks they have been snapping up DDOG stock, which is reflected in its Accumulation/Distribution Rating of B.
Datadog has a 94 RS Rating and a 97 out of a best-possible 99 Composite Rating. It is the reigning champion in IBD’s Computer Software-Enterprise group.
Datadog earnings shot up 233% and revenue 84% to $326.2 million. For both, it was the third straight quarter of accelerating growth. An expanding partnership with Amazon Web Services, the cloud computing unit of Amazon.com (AMZN), is boosting growth.
The company also guided up on 2022 revenue.
The Stock Checkup shows Datadog now has an EPS Rating of 70.
Started in 2010, Datadog operates a monitoring and analytics platform for software developers and information-technology departments.
Wyndham Hotels Stock
Wyndham Hotels stock is currently trying to reach a flat base buy point of 91.51.
The relative strength line is offering reasons for enthusiasm after hitting a new high. But caution is advised with the stock set to post earnings on Feb. 16.
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.
Travel has been one of the earliest and most harshly affected sectors in the coronavirus pandemic.
Vaccinations fueled a modest recovery in U.S. domestic travel but the stocks themselves have turned in wildly uneven performance.
But as fears over the omicron variant recede there is enthusiasm that travel could bounce back in a big way. Nevertheless, WH stock remains down slightly so far this year.
The Stock Checkup shows earnings growth has been very strong of late, with EPS rising by an average of 348% over the past three quarters. This comes after profits were badly hit by the impact of Covid lockdowns though.
A slate of other hotel stocks are also offering opportunities at the moment.
Expedia (EXPE) is also currently trading in a buy zone above a cup with handle base despite a painful reversal Friday following earnings. The ideal entry here is 190.88.
Brown & Brown Stock
BRO stock has a flat base with a 70.65 buy point. Shares fell 3.2% on Friday to 66.91, just below the 50-day line. This comes soon after it came close to reaching its entry.
Its RS line has been steadily gaining and currently sits at new heights.
Price performance has been stellar in broader terms over the past 12 months.
Its RS Rating of 95 puts it in the top 5% of stocks in terms of stock market performance over that period.
Brown & Brown is an insurance broker and is ranked No. 24 on the IBD 50 list. Excellent all-round performance is reflected in its Composite Rating of 93 out of 99.
Insurance stocks have been getting boosted by a steady rise in the 10-year Treasury yield.
There are good reasons to believe rates will trend higher for the foreseeable future as the Federal Reserve has been indicating it will pursue a more hawkish approach.
Markets are pricing in at least six Fed rate hikes in 2022, starting in March.
Meanwhile, the consumer price index came in hotter than expected in January. Both the consumer price index inflation rate and the core rate, which excludes food and energy, hit new 39-year highs.
The 10-year Treasury yield surged above 2% Thursday for the first time since mid-2019, closing at 2.03%. Yields pulled back Friday amid a flight to safety on Russia/Ukraine tensions.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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