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? Microsoft, Fortinet Goldman Sachs, Cleveland-Cliffs and Albemarle 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.
But Covid remains a concern, even as vaccinations reach more and more Americans. The rising number of cases of the new Delta variant is a worry.
The major indexes have been rallying after a spell of pressure. It is trying to shrug off inflationary worries and the possible demise of the heavily indebted China Evergrande. Increasing clarity on the Federal Reserve's approach to tapering bond purchases has been a help.
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.
The stock market looks to have cleared a rough patch, which was spurred as inflation fears and concerns about the rise of the delta variant of the coronavirus weighed on the market.
The market is now back in an uptrend after clearing stubborn resistance. Rising energy and metals prices have been a tailwind. Higher Treasury yields have helped many financials and weighed on growth stocks, but the market has been resilient.
This Dow Jones, Nasdaq and the S&P 500 are all now well clear of the key 50-day moving average after another strong week.
The market is now back in a confirmed uptrend. Bear in mind that the strongest stocks tend to go their strongest price runs in the early innings of a new uptrend. This often happens within just a few days or weeks of the switch from "market in correction" to "confirmed uptrend."
Now is a good time to be buying fundamentally strong stocks breaking out of sound chart patterns. The stocks featured below are potential candidates.
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
- Microsoft
- Fortinet
- Goldman Sachs
- Cleaveland-Cliffs
- Albemarle
Now let's look at Microsoft stock, Fortinet stock, Goldman Sachs stock, Cleaveland-Cliffs stock and Albermarle 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.
Microsoft Stock
Microsoft is getting more traction above its 50-day moving average. It is currently in a buy zone after clearing a new flat buy point of 305.94. It is actionable as high as 321.24.
But keep in mind that Microsoft reports fiscal first-quarter earnings Tuesday night.
The relative strength line for Microsoft stock is near record highs. MSFT stock has gained around 39% since the start of the year, which crushes the S&P 500's gain of 21%.
Microsoft is one of a handful of U.S.-listed stocks with trillion-dollar market caps. It was the second stock to achieve the feat, after old rival Apple. Both now have valuations above $2 trillion.
Microsoft stock's strong price action has boosted its IBD Composite Rating to a near-perfect 98. The biggest key to Microsoft's high score is its excellent earnings performance, which is reflected in its EPS Rating of 94. Microsoft earnings growth has accelerated for the past four quarters. Nevertheless, price performance is also strong.
Microsoft managed to serve up a beat-and-raise report for its fiscal fourth quarter ended June 30. The firm earned $2.17 a share on sales of $46.2 billion in the June quarter. Analysts had predicted Microsoft earnings of $1.92 a share on sales of $44.2 billion. On a year-over-year basis, Microsoft earnings rose 49% while sales increased 21%.
This was the company's fourth-straight quarter of accelerating sales and earnings growth.
For the September quarter, Microsoft expects to generate sales of $43.75 billion, up 18% from the same period last year. That's based on the midpoint of its guidance. Wall Street had predicted $42.5 billion in sales for Microsoft's fiscal first quarter.
Institutional investors remain big backers of Microsoft stock overall. In total, 40% of its stock being held by funds. It boasts eight consecutive quarters of increasing fund ownership.
On Sep. 14 the company announced a $60 billion MSFT stock buyback and also raised its dividend by 11%
Microsoft has introduced Windows 11, the biggest upgrade to its PC operating system in six years. Windows 11, due for a release in time for the holiday shopping season, features a refreshed design with a new user interface and Start menu. It also provides PC performance improvements and integrates the Teams videoconferencing app. Windows 11 is the successor to Windows 10, which came out in July 2015.
Meanwhile, the firm's successful pivot into cloud computing has been driving growth. It also 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.
Seven Stocks Near Buy Points; Tesla Rolls Back FSD
Fortinet Stock
Fortinet stock is now in a buy zone after clearing a new flat base entry of 322.10. Aggressive investors could have also used Oct. 7's high of 313.24 as an early buy point.
FTNT stock pulled back to below its 50-day line in late September following a long run above the key technical benchmark. It is once again pulling away from this level.
The stock has been on a tear as the market uptrend resumed, rising for eight sessions in a row. A reflection of its strong recent performance is the fact its RS line has just hit a new high.
Strong earnings and stock market performance have earned Fortinet stock a near-perfect Composite Rating of 98.
It is in the top 4% of stocks in terms of price performance over the last 12 months. In addition, the stock is up almost 126% so far in 2021.
Earnings have grown by an average of 29% over the past three quarters. Growth of 14% in the most recent quarter is not ideal however.
Fortinet competes with Palo Alto Networks and others in the firewall security market. Firewalls reside between private networks and the internet. They block unauthorized traffic and check web applications for malware.
As large companies shift to off-premise cloud computing services, one view is that firewall technology will play a lesser role. Fortinet has targeted software-defined wide area networks, or SD-WANs, an emerging computer networking technology.
Back in July the firm announced it was expanding its FortiCare and FortiGuard security services by adding a new security service called FortiTrust.
"FortiTrust security service offer user-based licensing that follow the user across the operations entire security platform," CEO Ken Xie said during the firm's most recent earnings call in July. "This enable organizations to easily manage and secure acquire our network, endpoint and cloud, which traditionally has been siloed. Initial service level are being offered for zero-trust network access and identity verification."
Fortinet earnings are due Nov. 4.
Goldman Sachs Stock
Goldman Sachs is currently offering an entry near 400 as it bounces off its 10-week line, which is actionable up to 10% above this level. It is also sitting just under a flat base entry of 420.86.
While it remains below its 2016 highs for now, the RS line for Goldman Sachs is looking to make a new high. If can successfully achieve this it will be a bullish indicator.
Investment bank Goldman Sachs on Oct. 15 smashed Q3 earnings views, capping a stronger-than-expected earnings week for big banks.
While earnings growth slowed in the most recent quarter, it remains very impressive overall. Price performance is also impressive, with the stock up over 57% in 2021.
Banks should benefit as interest rates rise, and the Fed has been signaling it is looking to dial back its current approach to stimulating the economy.
EPS has jumped by average of 212% over the past three quarters. This is well in excess of the 25% growth sought by the CAN SLIM cognoscenti over this time period.
Goldman Sachs stock is a solid all-round performer, with its RS Rating coming in out 89 of 99. Its EPS Rating of 92 is even better.
Wall Street expects Goldman Sachs earnings to grow 83% in 2021, accelerating from a 33% gain in 2020. But the investment bank is likely to see both earnings and sales decline in 2022, according to FactSet.
Deutsche Bank analyst Matt O'Conner, who rates Goldman Sachs stock as a hold with a 365 target, praised the firm's latest results.
"Both trading and investment banking fees were robust and much better than expected," he said in an Oct. 15 research note. Consumer banking was stronger (on higher management and incentive fees) and asset management fees were a bit weaker (on lower equity and debt gains)."
He also said that expenses were lower, despite higher revenues, and that credit ticked up on portfolio growth.
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
Cleaveland-Cliffs Stock
While Cleveland-Cliffs is forming a cup base with 26.61 entry, it is currently well below this buy point for now.
However the steelmaker is offering an early entry from a rebound off the 10-week line at around the 22.24 level. It is actionable as high as 22.46.
While the relative strength line is showing signs of life, investors will want to see it surge back to August's high going forward.
It remains sharply above 2020 pandemic lows, but off 2012-2013 highs.
At the moment stock market performance is its strongest suit, with its EPS Rating languishing at 63 out of 99.
The firm lost 32 cents per share in 2020 amidst the coronavirus pandemic, but EPS is surging now. As the economy continues to get back on its feet demand should continue to improve for its products.
On Oct. 22, the steel producer soared nearly 13% after swinging to Q3 EPS of $2.33 as revenue more than tripled.
"We went from $2 billion annual revenues in 2019 to expected revenues of $21 billion in 2021," CEO Lourenco Goncalves said in the earnings news release. He added that Q3's $1.9 billion of adjusted EBITDA equals 50% of the $3.8 billion year-to-date total, "showing that our profitability continues to increase."
Using its record free-cash flow, Cleveland-Cliffs retired $1.2 billion in preferred stock in Q3, equivalent to buying back 10% of shares.
Goncalves also touted CLF's "successful" negotiations of annual fixed-price sales contracts with some of its most important customers.
"Differently from other steel companies more exposed to spot prices, we believe that our average sales price next year should be higher than in 2021, allowing us to continue to grow our already strong profitability and to further strengthen our balance sheet," he said.
CLF has gotten limited help from this year's surge in steel prices, but it stands to get a significant boost in 2022. As an example, Goncalves told analysts on the earnings call, "We are doubling the price of our steel plate," based on rates already renegotiated with clients.
Albemarle Stock
Lithium play Albemarle is currently looking to pass a consolidation pattern entry of 253.19. However aggressive investors could opt to use its 10-week moving average level of 228.68 as an early entry.
ALB stock could soon have a handle, offering a potential 244.46 buy point.
The relative strength line is off highs, but has been turning higher again in recent sessions. The stock has gained a muscular 57% so far this year, and demand for electric vehicles could send it higher still.
Indeed earnings performance is still not ideal, but institutional investors are piling in, with its Accumulation-Distribution Rating coming in at a solid B.
Earlier this month RBC analyst Arun Viswanathan upgraded the lithium mining play to outperform.
"As EV production growth continues to accelerate, we believe [Albemarle] will continue to benefit given its unique low cost position and global scale," he said in a research note.
With electric vehicle sales occurring at a rapid rate it is leading outsized growth and higher prices pricing for lithium products.
Viswanthan believes prices "should result in positive contracting activity" between lithium miners and customers.
Albermarle was the biggest supplier of battery-grade lithium for electric vehicles last year. However it has a number of strings to its bow.
Lithium sales made up 40% of sales in 2020, bromine specialties were 35%, and catalysts 25%.
The company's bromine business provides products for areas including fire safety and oilfield drilling.
Its catalysts supplies products and services to the refining and petrochemical industries.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
