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? Northrop Grumman (NOC), Dollar General (DG), BYD (BYDDF), Sociedad Quimica Y Minra (SQM) and Vertex Pharmaceuticals (VRTX) are prime candidates.
With inflation worries growing, and the Federal Reserve taking a more hawkish approach to interest rates, market action has been challenging so far in 2022. The Russian invasion of Ukraine continues to weigh 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. The most recent attempt to rally has recently failed, resulting in a return to market in correction status. The S&P 500, the Nasdaq and the Dow Jones Industrial Average all undercut 52-week lows once again.
With the market back in a correction investors should avoid buying stocks altogether. Investors must start raising cash. You should be entirely off margin.
Investors should remain engaged though, and now is a good time to look for quality stocks too add to one’s watchlist. Candidates include those in the IBD 50. These will tend to have rising relative strength lines. The names below are good candidates.
Remember, there is still significant headline risk. Inflation remains a key issue while the Russia-Ukraine conflict is a wild card that has proved its ability to shake the market.
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
- Northrop Grumman
- Dollar General
- Sociedad Quimica Y Minra
- Vertex Pharmaceuticals
Now let’s look at Northrop Grumman stock, Dollar General stock, BYD stock, Sociedad Quimica Y Minra stock and Vertex Pharmaceuticals stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Northrop Grumman Stock
NOC stock has fallen well below a prior buy point of 477.36 from a bullish cup with handle base. That entry is no longer valid. Northrop Grumman also has retreated below its 50-day line, after being the only defense giant to hold that level.
But the relative strength line is holding at a two-year high, reinforcing its position as one of the current stock market leaders.
NOC stock could form a new consolidation. A strong move above the 50-day line could offer an early entry.
Northrop Grumman won a spot on the prestigious IBD Leaderboard list after it soared clear of a trend line within its handle.
Northrop is up more than 15% so far in 2022.
Northrop Grumman fills in the role of a leader within a cyclical area of the market that had struggled as a laggard for years until Vladimir Putin’s Russia attacked Ukraine in February. Meanwhile, China-Taiwan tensions continue to remain high.
On Northrop’s April 28 first-quarter earnings call, CEO Kathy Warden said the budget request fully funds initial production of the B-21 Raider stealth bomber. Biden’s defense budget plan also includes a “significant year-over-year increase in development funding” for a new intercontinental ballistic missile known as the Ground Based Strategic Deterrent.
The Air Force plans to spend $20 billion for B-21 production over five years. In 2020, Northrop received a $13.3-billion contract to develop the new ICBM.
While Northrop’s revenue and EPS have trended lower in recent quarters, those and other programs are expected to fuel growth in 2023 and beyond.
Northrop also recently announced a 10% increase in its quarterly dividend, to $1.73. That makes 19 straight years of higher dividends.
Dollar General Stock
DG stock has a cup-with-handle base buy point of 240.07. The RS line is looking strong in recent weeks and has just hit fresh heights.
Shares of the discount retailer are trying to hold around the 50-day line. DG stock fell 1.1% to 230.80 last week, but closed high in its weekly range.
With recession looming, even Dollar General shoppers are having to tighten their belts. U.S. consumers, the backbone of economic growth, are not as optimistic these days as they usually are.
Dollar General has struggled to top sales and earnings growth rates it posted during the pandemic. Nevertheless, the company boosted its outlook for the year in its latest quarterly report, as shoppers continue to look for deals to mitigate inflation pain.
Dollar General said it expects net sales growth of 10% to 10.5% vs. previous views of about 10%. It raised its same-store sales growth forecast to around 3% to 3.5% compared with its previous expectation of 2.5%.
DG stock’s RS Rating hit a new high of 92 last week. The RS Rating tracks a stock’s share price performance over the last 52 weeks vs. all other stocks. The best stocks will often rate over 90 at the time they launch a big price run.
Dollar General’s relative strength line is rising as well. The RS line, the blue line in the charts shown, shows a stock’s performance vs. the S&P 500 index. Dollar General’s EPS Rating is 78.
Dollar General sites near the summit of the Retail-Discount & Variety industry group. Other heavy-hitters include Dollar Tree (DLTR) and BJs Wholesale (BJ) are also among the group’s highest-rated stocks.
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
The EV stock has a 41.34 cup-base buy point on a daily chart, according to MarketSmith. On a weekly chart it offers a lower handle entry of 39.81. That handle could appear on a daily chart after June 22.
BYD stock popped 4% on Friday to 37.45. But shares fell 4.1% for the week, ending a five-week win streak.
BYD’s relative strength line is taking a bit of a breather after surging in the past few weeks to a record high.
Ideally, BYD would have a long handle, maybe long enough to be its own base, to offset the deep cup base and let the major indexes catch up.
The EV maker, which is backed by Warren Buffett, has shown skyrocketing growth. It’s posted seven straight quarters of at least double-digit sales gains.
BYD’s earnings track record has been lackluster, reflected in an EPS Rating of 56 out of a best-possible 99. But earnings are ramping up and expected to be strong through 2022.
Nevertheless, BYD stock is in the top 4% of stocks in terms of price performance over the past 12 months.
Sales of its electric vehicles and plug-in hybrids are set to overtake Tesla’s in Q2 in units sold, with BYD launching a slew of new models in the coming quarters. BYD makes its own batteries and chips, which helped it better manage an industrywide shortage, especially during the pandemic.
It reportedly will soon start supplying batteries to Tesla (TSLA), though the Texas-based company has not confirmed a deal.
BYD spent a lot on capital expenditures in 2021, but that’s paying off in massive EV/battery capacity. Unlike almost every other automaker in China, BYD sales hit record highs in April and May, topped 100,000 vehicles both times and surging vs. a year earlier. Growth should continue to boom over the next several quarters amid new models and markets.
Sociedad Quimica Y Minra Stock
The fertilizer stock is finding support at its 50-day line after giving up some gains. SQM stock rose 2.1% to 90.29 on Friday, down 6% for the week.
SQM surged out of a consolidation past a 90.97 buy point on May 19, racing to a 52-week high of 115.76 on May 27. But almost as quickly, it round-tripped a 27% gain.
A strong bounce from the 50-day line could offer a buying opportunity.
With the Ukraine-Russia war driving up fertilizer prices, SQ stock has been on a mighty run. So far in 2022 the stock is up about 78%.
But earnings have also been exploding. Over the past three quarters EPS has shot up by an average of 1,642%. Earnings growth came in at a healthy 973% in the last quarter.
The Chilean producer of specialty fertilizers, iodine and industrial chemicals is benefiting from the insatiable demand for lithium.
The chemical is a key ingredient used in making EV batteries. With electric car adoption growing it bodes well for its future prospects.
SQM delivered a more-than-10-fold increase in earnings in the most recent quarter. Sales nearly quadrupled. Lithium sales volume surged 59% as prices of the mineral exploded 572%.
SQM and BYD stock are both key components in Global X Lithium & Battery Tech ETF (LIT).
Tesla (TSLA), a former Leaderboard stock that has plunged from its all-time highs, is another key member of the fund.
Stocks Rally After Brutal Week But Be Careful Of This
Vertex Pharmaceuticals Stock
The stock is shooting for an official buy point is 292.85. It is also offering up a potential early entry of 279.23. It previously formed a cup-with-handle base but that entry is no longer valid.
The relative strength line has been spiking higher even as VRTX stock and the broader market struggled. It popped in high volume Friday and now sits just a hair below its 50-day moving average.
VRTX stock has soared more than 18% higher so far in 2022. This is impressive considering the broader market action.
Vertex is also highly profitable. As a result, VRTX stock has an EPS Rating of 98 out of a best-possible 99.
Earnings have grown by an average of 29% over the past three quarters. This comfortably beats CAN SLIM requirements.
In Q2, analysts expect the company to earn $3.54 per share on $2.13 billion in sales. Earnings would rise nearly 14% and sales would increase about 19%, according to FactSet. .
The company is testing a replacement for pancreatic cells known as islets. Islet cells help produce insulin, but don’t function properly in patients with type 1 diabetes. This leads to dangerous spikes in blood sugar. It’s important to note, the program is currently on pause in the U.S. while the Food and Drug Administration reviews dosing information.
Roughly nine months after receiving Vertex’s treatment, one patient no longer needed insulin shots or a pump. At five months, another patient had a 30% reduction in external insulin needed. Both received a half-sized dose while Vertex assesses the drug’s safety, Chief Financial Officer Charles Wagner said in an interview. The company has also dosed a third patient.
Both patients also showed increases in the amount of time their blood sugar was in the desired range. Dr. Camillo Ricordi called the results “remarkable and encouraging.” Ricordi is the director of the Diabetes Research Institute and Cell Transplant Center at the University of Miami Miller School of Medicine and is the steering committee chair for the Vertex study.
“As a treating physician, I have seen the profound burden of this disease on patients, especially those who experience severe (low blood sugar),” he said in a written statement. “The ability to restore a patient’s islet function and improve glycemic control, and subsequently reduce (external) insulin dependence, has significant potential to improve patients’ lives.”
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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