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), Merck (MRK), General Dynamics (GD), Cheniere Energy (LNG) and Nutrien (NTR) are prime candidates.
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. 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 market tried to rally but has just fallen back into correction territory. The S&P 500 has undercut its April lows and the Nasdaq is at its lowest levels since late 2020. The Dow Jones Industrial Average has also fallen below the key 200-day and 50-day moving averages.
The market is in bad shape. This means you should avoid buying stocks altogether. Instead, it is a good time to start raising cash — start by selling your weakest performing stocks first. If you have great conviction about a stock and have a profit cushion, consider holding through the correction. You also move entirely off margin.
But you should stay engaged with the market and get to work on building a robust watchlist. Looks for stocks contracting less than others or less than the main indexes. These will tend to have rising relative strength lines. The names below are good candidates.
Remember, there is still significant headline risk going forward. Inflation remains a key issue while the Russia-Ukraine conflict is a wild card that has proved its ability to shake the market.
But 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
- General Dynamics
- Cheniere Energy
Now let’s look at Apple stock, Merck stock, General Dynamics stock, Cheniere Energy stock and Nutrien stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Apple stock reversed sharply last week after briefly flashing an early entry on Wednesday. It also remains shy of a consolidation pattern entry of 183.04.
Apple stock has undercut its 50-day line and its 200-day moving average amid broad pressure. If AAPL holds up despite the Nasdaq bear market it could be a leader in the next uptrend.
Apple stock has performed better than most stocks, especially techs, during the market correction. The relative strength line is still right at new highs. This gauges a stock’s performance compared to the S&P 500.
AAPL has seen its Composite Rating shoot up to a strong 89 out of 99. Apple became the first company to reach a market capitalization of $3 trillion earlier this year, though it has now backed off this level.
Apple stock was hit after it posted its latest quarterly report late Thursday, losing ground on its 50-day moving line in the process.
Analysts expected Apple earnings to come in at $1.42 per share on sales of $94 billion. The firm posted EPS of $1.52 on sales of $97.28 billion.
However, it was punished after management said the resurgence of Covid-19 in China could hurt sales by as much as $8 billion in the current quarter.
The IBD Stock Checkup tool shows earnings growth is bouncing back in recent quarters following the Covid-19 pandemic.
Apple‘s EPS growth has averaged 35% 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 9% in fiscal 2022 and 6% growth in 2023. Investors will want to see CEO Tim Cook squeeze out more impressive gains.
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.
Earlier this year Apple hosted its latest product launch. The event, broadcast live online from Apple Park headquarters in Cupertino, Calif., saw a slew of products unveiled.
Perhaps most notable was a new low-cost 5G iPhone SE. The device, which sells for $429, hit store shelves on March 18.
Speculation continues 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.
The relative strength line has already hit a 16-month high.
The stock currently boasts outstanding all-around performance. This is reflected in its near-perfect IBD Composite Rating of 98.
Big money has been snapping up the stock of late, which is why it holds a powerful Accumulation-Distribution Rating of A-.
Earnings in particular are a strength, with its EPS Rating coming in at 93 out of 99. Nevertheless, the stock is up around 19% over the past 12 months.
The stock was boosted following its latest earnings report. Merck earned $2.14 per share, minus some items, on $15.9 billion in sales. Earnings soared 84% and beat analysts’ call for $1.83. Sales were $15.9 billion, up 50% year over year. Merck stock analysts expected $14.56 billion, according to FactSet.
Excluding the impact of exchange rates, earnings and sales popped a respective 89% and 52%.
Merck’s biggest moneymaker, cancer treatment Keytruda, raked in $4.8 billion. Its sales advanced 23%. Human papillomavirus vaccine Gardasil generated $1.5 billion in sales, up 59%. In constant currency, Keytruda sales rose 27% and Gardasil sales rocketed 60%.
The Ridgeback Biotherapeutics-partnered Covid-19 treatment called Lagevrio generated more than one-fifth of Merck‘s sales during the quarter. It rivals Pfizer‘s Paxlovid. Overall sales surged by half in the first quarter. Excluding Lagevrio’s impact, Merck reported 19% sales growth.
Now, the recent IBD Stock Of The Day expects the Covid pill to bring in $5 billion to $5.5 billion in full-year sales.
For the year, Merck now expects to earn $7.24-$7.36 per share on $56.9 billion to $58.1 billion in sales. At the midpoints, both metrics are above Merck stock analysts’ forecast for adjusted earnings of $7.28 a share on $57.25 billion in sales.
General Dynamics Stock
GD stock has built a flat base with an ideal entry point of 255.09. Adventurous investors could also use an early entry just above recent highs, at 249.79.
The stock is trying to move clear of its 10-week line. The fact its RS line has just hit a new high is a good sign. So far in 2022 the stock has risen 15%.
At the moment stock market gains are far superior to earnings performance. But analysts see full-year EPS rising 5% in 2022 before ramping up to 16% gains in 2023.
Wall Street has been snapping up General Dynamics stock of late. In total, 41% of GD shares are held by funds. A further 8% are held by banks.
General Dynamics and other defense stocks jumped at the start of Russia’s Ukraine invasion and have now formed short bases above longer consolidations.
Russia’s invasion is spurring Europe and other countries to significantly increase defense spending, which should benefit these companies in the long term.
The maker of the Gulfstream line of jets recently turned in Q1 EPS of $2.61, a 3.1% rise vs. a year ago. This was above analysts views for $2.51.
GD’s revenue of $9.4 billion also beat estimates of $9 billion. Its aerospace business had a strong quarter. It had revenue of $1.9 billion and operating earnings of $243 million with a 12.8% operating margin.
“Revenue was almost $180 million higher than anticipated by the sell side,” CEO Phebe Novakovic said. “The difference is almost entirely growth at Gulfstream services and jet aviation.”
The U.S. market remains robust with some slight improvement in Southeast Asia and the Middle East, Novakovic said. But China remains slow.
“The Russian invasion of Ukraine has stopped activity in Eastern Europe and slowed activity in Western Europe,” she added.
Cheniere Energy Stock
Cheniere Energy shares are pulling away from their 10-week moving average, which can be used as a buying opportunity.
LNG has also formed a new flat base. It briefly topped the buy point here of 149.52 but is now back below it.
The relative strength line underlines how LNG stock has been a big winner amid the Ukraine-Russia war. It outperformed handsomely since the start of 2022 as energy prices skyrocketed.
The RS line has just hit a new high. This strength suggests it could be coiling for another upward run. It is up around 44% so far this year.
LNG got a boost from its latest quarterly report. The company posted a loss of $3.41 per share, mainly due to $3.5 billion in derivative losses related to international LNG prices. However, revenue of $7.48 billion cleared analysts forecasts for $6.32 billion, according to Zacks Investment Research.
The firm raised its profit forecast for 2022 amid spiking demand. It upped its full-year adjusted core earning estimate to $8.2 billion to $8.7 billion. This was up from a prior forecast of $7 billion to $7.5 billion.
Cheniere has benefited from a rise in demand amid the Russia-Ukraine war.
“Today we are raising our 2022 financial guidance due to the sustained strength in the global LNG market and an increase in expected LNG production,” CEO Jack Fusco said in a statement. “The current volatility in the global energy markets signals the need for additional investment in new LNG capacity, underscoring the power of the Cheniere platform.”
While stock market performance has been stellar over the past 12 months, earnings performance is lagging badly. This is reflected in its EPS Rating of 5 out of 99.
This has not stopped Big Money snapping up the stock in expectations of an earnings bonanza going forward.
The Leaderboard stock continues to expand its Sabine Pass Louisiana export facility to take advantage of growing LNG markets. A sixth train, or liquefaction production unit, turned out its first export cargo in December.
The number of Cheniere LNG cargoes rose 18% to 153 year over year. LNG exports have climbed in recent months as Cheniere completed its Sabine Pass expansion amid increased global demand for LNG.
Europe gets about a third of its natural gas from Russia and about a quarter of that gas travels via pipelines routed through Ukraine. But Russia’s invasion of Ukraine puts Europe’s access to natural gas at risk. European electricity prices were sky-high even before Russia’s Ukraine war.
Europe has been outbidding Asian markets for the limited amounts of LNG available from the U.S., Australia and Qatar.
Nutrien is actionable after it retook its 10-week moving average. It is holding above the 10-week, though investors might use Thursday’s intraday high of 107.82 instead. The official buy point is 103.27 and it is buyable as high as 113.60.
The stock previously surpassed its 20% profit goal from a flat base. The relative strength line is regaining momentum.
Canadian firm Nutrien makes fertilizers, and higher product prices have boosted the top and bottom lines.
Analysts see 138% EPS growth in 2022. It emerged Jan. 4 that CEO Mayo Schmidt has stepped down and resigned from the board, which caused the stock to fall, but it has battled back well.
In the most recent quarter NTR earnings skyrocketed 831% to $2.70 a share, with revenue up 64% to $7.66 billion.
Nutrien raised its full-year EPS guidance to $16.20-$18.70, up from $10.20-$11.80 prior guidance and ahead of consensus views of just above $15.
The company pointed to higher selling prices, increased potash volumes, higher retail crop nutrients and crop protection products gross margins. The EPS guidance also factors in at least $2 billion in NTR stock buybacks.
Nutrien is part of the high-flying Chemicals-Agricultural industry group. It is ranked near the top of the 197 IBD industry groups, based on price performance and momentum.
The group had already been on a huge run when Russia’s invasion of Ukraine sparked what looked like a strong rally.
A host of forces have contributed to a surge in fertilizer prices, including restrictions on exports from Russia, Belarus and Ukraine.
A spike in natural gas prices, the feedstock for nitrogen-based fertilizer, and U.S. tariffs on supplies from Morocco have also contributed.
Fertilizer stocks came down about 15%-20% from their peaks and now looking to drive higher once again.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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