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), Centene (CNC) and Vertex Pharmaceuticals (VRTX) are prime candidates.
With inflation worries high, and the Federal Reserve tightening rates aggressively, market action has been challenging so far in 2022. The Russian invasion of Ukraine continues to weigh on markets.
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.
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. But the market is rallying once again after falling into correction status. But while the S&P 500, the Nasdaq and the Dow Jones Industrial Average are off 52-week lows they remain stuck below their 50-day moving averages. This means caution is still advisable.
With the market showing promising signs investors can make stock purchases once again. Investors should concentrate their efforts on quality stocks, such as those in the IBD 50. These names will tend to have rising relative strength lines. The stocks 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.
Now let’s look at Northrop Grumman stock, Dollar General stock, BYD stock, Centene 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 just retaken its 50-day line, after being the only defense giant to hold that level.
But the relative strength line is holding near 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 be used an early entry by aggressive investors.
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 20% 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 is in its buy zone above a cup-with-handle base entry of 240.07. The RS line is looking strong in recent weeks and has just hit fresh heights.
Shares of the discount retailer managed to hold around the 50-day line during bearish action, and has now powered away from the key benchmark. DG stock powered 7.4% higher last week.
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 has just surged to a new high of 95 out of 99. 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.
BYD stock battled back after seeing a five-week win streak come to an end. It ended last week up a meaty 5.5%.
Ideally, BYD would have formed a longer handle. This would have helped 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 2% 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.
Centene is benefiting from a current uptick among health stocks. It has formed a double-bottom pattern, this time with an ideal entry of 87.44.
The relative strength line has just hit a new high, and it remains on a strong long-term uptrend.
Earnings performance is impressive. It holds an EPS Rating of 93 out of 99. Earnings grew by an average of 43% over the past three quarters.
Profits are seen ramping up, with 9% growth seen this year and growth of 13% expected in 2023.
Big Money is a key backer of the stock, with 66% of shares currently held by funds. Investors will want to see volume pick up if it attempts a breakout.
The company provides health plans and related health care management services.
The St. Louis-based company is one of the largest Medicaid-based managed care organizations in the country. While Centene primarily provides health care products and services through Medicaid and Medicare, it also works through private insurers.
CNC and other managed care providers have been mounting a rally this week amid a market that has been rocked by fears of a recession.
Centene beat Wall Street’s first-quarter predictions with revenue increasing 24% year over year. Analysts predict that CNC earnings per share will increase 8% in 2022 and that revenue will edge up 13%, according to FactSet.
Last week, Centene increased its 2022 full-year guidance. The company cited increased Medicaid premium revenue and “favorable” insurance marketplace performance so far in the second-quarter as reasons for the guidance increase.
Funds and other institutional investors own 67% of Centene’s outstanding shares. As of March, 2,269 funds owned CNC shares, an increase of 124 since December, according to MarketSmith.
Vertex Pharmaceuticals Stock
The stock has shot up just shy of an official buy point is 292.85. Vertex has blasted above an early entry of 279.23, closing Friday just in range of that. 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 30% 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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