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? Advanced Micro Devices (AMD), Target (TGT), Chegg (CHGG), Exact Sciences (EXAS) and Generac (GNRC) are prime candidates.
X
Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects a rising confidence that the economy will eventually recover from the coronavirus.
The broader stock market got a shot in the arm after Pfizer (PFE) and BioNTech (BNTX), then rival Moderna (MRNA), announced positive coronavirus vaccine test results. Both the Pfizer and Moderna vaccines have received FDA emergency us approval. The stock market rallied around enthusiasm that a stimulus deal is set to be reached, though talks were continuing to drag on.
It comes after a rally fueled by Joe Biden winning the U.S. presidential election. Though President Donald Trump is still disputing the result, his attempts to take the matter to the Supreme Court have failed.
Soaring coronavirus cases and new Covid restrictions are concerns. The dueling coronavirus headlines also have spurred some back and forth between stay-at-home stocks and equities that might fare better with the economy returning to normal.
With stocks moving powerfully and the market in an uptrend, it is a time to be looking for stocks near buy zones showing strength compared to the rest of the market.
Join IBD experts as they analyze winning stocks on IBD Live every morning. Take a free trial!
So why do the stocks chosen stand out? Before turning to that question, it is important to consider how one goes about choosing a stock in the first place. Superior fundamentals and technical action, and buying at the right time, are all part of a shrewd investing formula.
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
Never forget that the M in CAN SLIM stands for market. Most stocks, even the very best, will tend to 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 Dow Jones Industrial Average, Nasdaq and the S&P 500 are all around all-time highs. In addition they are all well clear of their 50-day moving averages. The whole market is back in an uptrend, and it is a good time to be considering opening new positions.
As you identify stocks, on a technical basis look for stocks with rising relative strength lines. Stocks that hold up amid tough conditions often bound to new highs once a market stabilizes.
Remember, things can quickly change, when it comes to the stock market. Make sure you don’t miss out on a rally by keeping a close eye on the market trend page here.
Best Stocks To Buy Or Watch
Now let’s look at AMD stock, Target stock, Chegg stock, Exact Sciences stock and Generac 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.
AMD Stock
AMD is slightly extended from the 88.92 entry, but has a high handle with a 96.47 entry. AMD stock closed Friday at 95.92, back below the official entry, but has been actionable for several days after breaking a short trend line and moving above the bulk of the high handle.
The relative strength line is back to record highs. This gauge measures a stock’s performance compared to the broader S&P 500 index.
AMD stock has a perfect IBD Composite Rating of 99. It has earned this due to its excellent earnings and stock market performance, and it holds a EPS Rating of 99.
The Stock Checkup shows AMD earnings have grown by an average of 151% over the past three quarters. This is above the 25% growth sought by CAN SLIM cognoscenti. It slowed to a still-strong 128% growth in the most recent quarter.
AMD stock holds an Accumulation/Distribution Rating of B, which represents moderate buying from institutions. It boasts eight consecutive quarters of increasing fund ownership. Notable holders include the JPMorgan Large Cap Growth Fund (JLGMX) and the Fidelity Contrafund (FCNTX). These are both rated among the very best funds by IBD research.
Another key ingredient to the CAN SLIM formula is new products. AMD is making moves on this front.
In October the company unveiled its Ryzen 5000 series of central processing units. It claims they are the “fastest gaming CPUs in the world.”
“Gaming is at the heart of so much of what we do at AMD, whether you are talking about PCs or consoles or cloud gaming and mobile,” Chief Executive Lisa Su said during an online presentation.
AMD stock is on IBD Leaderboard.
Target Stock
Target stock is back in buy range. It previously broke out of a flat base-like pattern with a buy point of 167.52, and is buyable up to 175.90. TGT stock got as high as 181.17, but closed Friday at 170.42. It’s now its 21-day exponential moving average, where it had been finding support.
Its latest pattern was slightly short for a flat base, unless you count the 25 days since its Oct. 13 closing high.
The Leaderboard stock has a good Composite Rating of 92, putting it in top 8% of stocks tracked. Earnings in particular are a strength, with EPS rising by an average of 43% over the past three quarters. Earnings growth is accelerating, coming in at 105% growth in the most recent quarter.
Institutional sentiment is also strong, with its Accumulation/Distribution Rating coming in at B. This reflects moderate buying among institutions.
The big-box retail giant got a big boost after it crushed Q3 earnings and same-store sales forecasts on Wednesday. It was boosted by an early start to the holiday shopping season this year.
A key to the firm’s success has been its work to improve its e-commerce capabilities to support the expected high volumes. Target uses Order Pick Up, Drive Up (curbside pickup) and Shipt, which Target uses to fulfill its digital orders.
Order Pickup surged more than 50%, Drive Up shot up more than 500%, and Shipt soared 280%.
“This was a banner quarter for Target surpassing even the most optimistic estimates for comp sales and bottom line on the Street,” said Third Bridge analyst Nick Shields. “Perhaps the most encouraging factor was the company’s disclosure that customers are making more frequent trips into stores, suggesting brick-and-mortar customers will be willing to come into the stores this holiday season.”
Here’s How To Get A Free Trial Of IBD Leaderboard
Chegg Stock
The recent IBD Stock Of The Day is close to breaking out of a cup base. The ideal buy point is 90.09 buy point, according to a MarketSmith analysis. The stock has been steadily climbing back towards its 89.99 Oct. 26 high after a post-earnings selloff.
CHGG stock has risen sharply over the past five weeks, so a handle before a breakout would shake out some weak holders. But cup-without-handle breakouts can work fine.
The relative strength line has steadily ascending since mid-November, though still below its late October high or early August record. But the RS line is up sharply in 2020, as CHGG stock has more than tripled off its coronavirus crash lows. From a longer-term perspective, the stock has been a huge winner, surging 900% since an April 2017 breakout.
Chegg stock has a near-perfect Composite Rating of 98. This put it in the top 2% of stocks tracked. It boasts a balance of excellent earnings and stock market performance. But while EPS has grown by an average of 34% over the past three quarters, earnings actually declined by 6% in the most recent quarter. That’s partly due to spending to crack down on password sharing.
Despite this, Chegg posted earnings in October which better than analysts feared, and the firm issued healthy guidance for both Q4 and 2021.
Revenue growth has accelerated for five straight quarters, with the study-at-home trend thriving during the coronavirus. There are concerns that growth could see a big slowdown after the pandemic as schools reopen for in-classroom learning.
“In the U.S., we are seeing growth from many sectors including students who are taking more courses online, increased penetration into online colleges and the impact of our technology efforts to reduce (unauthorized) account sharing,” CEO Dan Rosensweig said on the Q3 call.
Chegg was IBD Stock Of The Day on Dec. 18.
Exact Sciences Stock
Exact Sciences stock is closing in on a cup-with-handle buy point of 139.36. It became actionable since breaking a downtrend in its handle on Thursday. EXAS stock finished at 137.05 on Dec. 18, a record close.
The base has a lot of strong features: 21% deep, with a downward-sloping handle in dwindling volume.
The RS line for Exact Sciences stock has been broadly making progress since late August. Its good stock market performance is reflected in its Relative Strength Rating of 91 out of a possible 99. The stock is up almost 50% so far in 2020.
The company has yet to turn a profit. This is why it has a worst-possible EPS Rating of 1. But quarterly sales have been growing at least at a double-digit clip for years. Investor’ssee this as providing the key that will unlock profitability in the future. The company’s quarterly revenue stems primarily from diagnostic tests for colon cancer, breast cancer and Covid-19.
Exact Sciences recently unveiled the results of a clinical study analyzing use of its diagnostic test in patients with breast cancer. The diagnostic test helped patients avoid needless chemotherapy — a boon due to the toxicity that chemo presents. Bullish action following this saw it named the IBD Stock Of The Day for Dec. 17.
The clinical study weighed the benefit of Exact Sciences’ Oncotype DX Breast Cancer Recurrence Score. Patients in the five-year study were all considered candidates for chemotherapy based on traditional parameters.
Based on the results of their cancer diagnostic test, patients were split into groups. Some patients were treated only with anti-hormonal therapy, though traditionally they would have received chemotherapy. After five years, 96% were free of cancer.
Exact Sciences has several top-rated institutional investors, including T. Rowe Price New Horizons.
Generac Stock
Generac has formed a flat base, and is shooting for an ideal buy point is 234.65. It will be buyable up to 246.38. The stock is currently looking for support at its 10-week moving average. A strong rebound from the 10-week line would offer an early buying opportunity, especially if it reaches 226.74, just above last week’s high.
Generac stock has been consolidated in an orderly fashion, however it is a third-stage pattern. These tend not to be as successful as earlier bases, IBD research has found. But some leaders are able to make them work.
The relative strength line has trended lower since late October as Generac stock has been basing. But the RS line has dramatically outperformed in 2020 as a whole.
Generac stock currently holds an IBD Composite Rating of 97 and a Relative Strength Rating of 90.
The Stock Checkup Tool shows earnings have grown by an average of 19% over the previous three quarters. This just below the 25% growth sought by CAN SLIM investors. However growth jumped to 45% in the most recent quarter as EPS accelerates.
The maker of power backup systems has been rising this year as more consumer prepare for wildfires, hurricanes and other disasters. The company is launching clean energy offerings, too, which makes it appealing for institutions that invest on ESG principles.
William O’Neil protege David Ryan previously highlighted the stock on an Investing with IBD podcast. He was drawn to Generac stock after being impacted by wildfires in Malibu, Calif. He said he wished he would have had his own generators before the natural disaster occurred.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
YOU MAY ALSO LIKE:
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
These 13 Tempting Dividend Stocks Torched Investors
Five Stocks Near Buys As Vaccine Era Begins; Tesla’s ‘High-Class’ Problem
