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), Chegg (CHGG), Pinterest (PINS), Hologic (HOLX) and Corsair Gaming (CRSR) are prime candidates.
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 use approval.
Meanwhile, congressional leaders finally reached an agreement on a $900 billion stimulus bill after weeks of negotiations. A Democrat victory in the two Georgia Senate runoffs has also raised the prospect of bigger stimulus spending once President-elect Joe Biden takes office. Even the storming of Capitol Hill by supporters of outgoing President Donald Trump was not enough to derail a stunning first week of 2021.
Soaring coronavirus cases and new Covid restrictions remain 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.
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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, Chegg stock, Pinterest stock, Hologic stock and Corsair Gaming 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.
Shares are now extended from an 88.82 double-bottom base entry. But AMD stock rebounded from his 10-week line bullish last week, and is still in buy range from that point, as well as above its 21-day exponential moving average. It’s already working on a short consolidation that could turn into a flat base and 98.08 entry.
The relative strength line is just off record highs, though it has been moving sideways to slightly lower over the last few weeks. This gauge measures a stock’s performance compared to the broader S&P 500 index.
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.
The education stock has managed to clambered above a cup base breakout buy zone. The buy point here is 90.09, according to MarketSmith analysis. However in the process it cleared a high handle buy point of 95.30, and is in the buy zone from this entry.
Chegg stock managed to pass its high handle buy point after showing market strength in the most recent full week of trading. Shares powered up by 6.3%.
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 1,050% since an March 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.
Chegg provides provides services such as homework help for students. Its main cloud-based product is Chegg Study, a $14.95 per month service that offers a vast online library of textbook solutions for science, math, business and engineering subjects. Other products include Chegg Writing, Chegg Math Solver and Chegg Tutors, which provides virtual online academic coaching.
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.
E-commerce play Pinterest has rebounded strongly from its 10-week line, which offers a buying opportunity. The stock gained more than 9% in the past week.
With a 10-week line pullback/rebound, the buy point can be imprecise. Investors usually should buy within 10% of the 10-week line — closer is better — once a rebound has been identified. That 10-week line can be a moving target.
The recent IBD Stock Of The Day has seen its RS line rebound from its from a pullback dip. It is now just off all-time highs.
Pinterest has a good, but not ideal, Composite Rating of 91. Stock market performance is exemplary, with earnings currently holding down its overall rating. Earnings have been spotty, with the firm only posting earnings rather than a loss in two of the past four quarters.
But analysts are betting Pinterest earnings will jump to 28 cents a share for the full year vs. 1 cent in 2019. In 2021, Pinterest earnings per share is seen surging 125%.
Pinterest is a website where users post photos, charts and other images covering a wide range of categories and interests, with visual search capabilities.
It garners most revenue from online advertising but aims to be a bigger player in e-commerce. The social media firm has partnered with Shopify (SHOP) to develop online shopping tools for its website.
Pinterest currently does not take a cut of the sales made through its site.
“We see PINS in the early innings of executing against a broad set of opportunities along a few key industry themes including the offline to online shift in ad spending and the blurring of lines between digital advertising and e-commerce,” UBS analyst Eric Sheridan said in a recent note to clients.
Shares popped nearly 27% on Pinterest’s third-quarter earnings report, released on Oct. 28. The stock then consolidated for nearly two months.
The Covid-19 testing play is in a buy zone after breaking out of a cup with handle base, according to MarketSmith analysis. The ideal buy point was 76.95. One factor in the base’s factor is the fact that it is first stage base. Such early stage bases have a better chance of success.
Hologic stock previously found support at its 50-day moving average, which was a bullish indicator. The fact its relative strength line spiked upwards was key to the stock staging a successful breakout.
The stock has a near-perfect IBD Composite Rating of 98. This puts it in the top 2% of stocks tracked. One notable feature of the stock is the fact earnings are stronger than stock market performance. It has a top notch EPS Rating of 93.
The Stock Checkup shows earnings have grown by an average of 78% over the past three quarters. This is well clear of CAN SLIM requirements for 25% growth. It accelerated to 218% growth in the most recent quarters.
Hologic develops and manufactures diagnostics products, medical imaging systems and surgical products. It operates through its diagnostics, breast health, GYN surgical and skeletal health segments.
While some areas of its business have been hurt by the coronavirus pandemic, the company has also benefited from increased demand for its Panther testing platform. It is being used to provide rapid turnaround of Covid-19 tests. Each system can provide initial results of the coronavirus test within three hours, and can process more than 1,000 coronavirus tests within 24 hours.
CFRA analyst Kevin Huang is rating Hologic stock as a buy with an 84 target. He believes the stock is trading “below fair value” amid strong demand.
“In the near term, (Hologic) has more than offset weaknesses in its base businesses with Covid-19 test sales, a strong tailwind that we expect to fade toward the end of 2021. We expect (fiscal 2021) Covid test sales to be higher than most investors expect because Covid testing will still be highly relevant even as Covid vaccination campaigns are underway,” he said in a research note.
Longer term, he believes the firm will benefit from “strong, recent placements of Panther diagnostic systems.” He said these were boosted by customer demand for increased testing capacity.
Corsair Gaming Stock
The Leaderboard stock is in buy zone a buy point after after finding support at the 10-week moving average. Corsair Gaming is within 10% of the 10-week line buy point of 35.15.
The stock suffered a sharp pullback from its all-time high of 51.37, which it reached Nov. 24. Nevertheless, the stock, which started trading on Sep. 23, is still up considerably on its IPO price of 17 per share.
Corsair makes gaming peripherals such as headsets, keyboards, mice and controllers. It also sells PC components such as memory, cooling systems and power supplies as well as full gaming PC systems.
Like other video game companies, Corsair has benefited from increased usage during the home entertainment boom spurred by the Covid-19 pandemic.
Goldman Sachs analyst Rod Hall is rating Corsair Gaming stock as a buy rating with a price target of 32
“Corsair is perceived by gamers as a high-performance brand with a reputation for superior quality across all of its broad product lines,” he said in a note to clients.
MarketSmith’s Scott St. Clair highlighted the potential of Corsair stock when he appeared on the most recent Investing with IBD podcast.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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