2022 was a tough year for many of the best stocks to buy and watch, hurt in part by rising interest rates and an increasingly hawkish Federal Reserve. But a handful of the best stocks to buy and watch in the technology sector are holding up well as the stock market tries to bottom.
Interest rates have been dropping, but they haven’t been dropping due to lower inflation expectations; instead, they’ve been falling in anticipation of a sharp slowdown for the economy this year. The 10-year Treasury yield recently fell all the way down to 3.33% after hitting a high of 4.3% in October.
Fears of a recession has made it an extremely challenging environment for many of the best stocks to buy and watch. But buyers have lifted the stock market off lows as hopes grow for a soft landing for the U.S. economy.
Stocks with high P-E ratios like Tesla (TSLA) and Nvidia (NVDA) were hit hard by institutional in 2022, along with security software stocks like CrowdStrike (CRWD) and Zscaler (ZS).
A rising interest rate environment isn’t good for the best stocks to buy in the tech sector with high multiples. Why? Because it makes for a more challenging operating environment. If the stock market senses any possibility of a slowdown in earnings growth from high P-E names, the selling will hit these stocks first.
But the Nasdaq composite and S&P 500 showed bullish price and volume action on Jan. 6, with strong percentage gains in higher volume. The price action was enough to put the stock market back on a confirmed uptrend, but both indexes still face overhead supply issues. Nonetheless, the Nasdaq and S&P 500 have officially broken out of their downtrends with sharp moves above their 50- and 200-day moving average lines.
Now the debate starts as to whether or not it will be a tradable rally or the start of a new bull market.
Top Traits Of Best Stocks To Buy
The best stocks to buy and watch aren’t hard to find, as long as you’re fishing in the right pond. Top stocks like Iridium Communications (IRDM) and Impinj (PI) don’t get a lot of attention, but both have characteristics seen in past stock market winners before big price moves.
The best stocks to buy and watch boast strong fundamentals along with leading price performance in their industry group. Many also show favorable fund ownership trends.
The best tech stocks also tend to show resilience in down markets. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.
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Screening for the best stocks to buy and watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.
The best stocks to buy and watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.
The best tech stocks to buy and watch now include Impinj, Jabil (JBL), Iridium Communications, , Fortinet (FTNT) and Workday (WDAY).
With the stock market fluctuating, and fresh signs of distribution in the major stock indexes, new buys will most likely have a hard time making meaningful headway. But when new institutional money starts to come in from the sidelines, the best stocks to buy and watch could easily resume their market leadership, helped in part by strong fundamentals.
Best Stocks To Buy: Impinj
Impinj, a dominate chip provider for the Internet of Things (IoT) reported strong earnings on Feb. 8, but a 9.5% intraday gain faded to 0.3% by the close. The stock is prone to volatile swings, but it’s still near a 129.12 buy point as it holds support above the 10-week moving average.
Quarterly profit soared 156% to 41 cents a share. Revenue increased 46% to $76.6 million. For the current quarter, the midpoint of Impinj’s revenue guidance was $83.5 billion, well above the consensus estimate at the time of $77.4 million
Annual earnings estimate are also strong. For 2023, full-year profit is expected to soar 63% from 2022. In 2024, profit is expected to rise 32%. Estimates have been heading higher.
The company makes tracking chips, mostly used for inventory management that can connect items to the internet cloud for customers in retail, transportation, logistics and other industries. It uses a wireless technology called Rain RFID.
Many of the best stocks to buy make their biggest moves from early-stage bases. Impinj still looks early stage after a 58% pullback that started in late December 2021 shook enough sellers out to reset the base count.
Composite Rating: 97 (on 1-99 scale with 99 tops)
Latest-quarter EPS: +156%
Latest-quarter sales % change: 46%
Five-year EPS growth rate: n/a
Annual return on equity: n/a
Up/down volume ratio: 1.1
Fortinet turned a lot of heads when the security software firm reported its third straight quarter of accelerating earnings growth on Feb. 7. Goldman Sachs on Feb. 14 initiated coverage with a buy rating and price target of 73.
The bullish earnings report was enough to break FTNT stock out of a downtrend that started all the way back in January 2022.
Quarterly profit surged 76% to 44 cents a share. Revenue increased 33% to $1.28 billion. For the full year, revenue was up 32% to $4.42 billion. Total billings increased 34% to $5.59 billion.
Commenting on the results, CEO Ken Xie said: “Our market share gains are being driven by Fortinet’s integrated and single platform approach to cybersecurity combined with FortiASIC technology, which lowers the management costs and the total cost of ownership for organizations. Given our cost-for-performance advantage, the convergence of security and networking, and the consolidation of products and vendors, we expect to continue our solid growth trajectory.”
After several up weeks in a row, Fortinet will likely pause soon and consolidate recent gains. Watching for tight, sideways trading from here. Many of the best stock to buy show strength and support after a breakout, it can often usher in a new entry.
Composite Rating: 95
Latest-quarter EPS % change: +76%
Latest-quarter sales % change: 33%
Five-year annualized EPS growth rate: 36%
Annual return on equity: 385%
Up/down volume: 1.1
Jabil, a provider of electronic manufacturing services, found bullish support at its 10-week line during the week ended Jan. 13, soaring 14.2% in heavy turnover. The huge volume showed that institutional investors were the driving force behind the stock’s gains.
Earnings growth has ranged from 20% to 63% over the past four quarters. Over the same time period, revenue growth has come in between 11% and 22%.
Shares fell sharply when the company reported earnings in mid-December, despite another quarter of low-double-digit earnings and revenue growth. Revenue growth slowed from the prior quarter, but still rose 12% from the year-ago period. Guidance for the current quarter was mostly in line with expectations.
For its current fiscal year 2023, the company raised its adjusted earnings outlook to $8.40 a share vs. the consensus at the time of $8.18. The raised guidance was 25% higher from its outlook at the beginning of the fiscal year.
After a pullback close to its 21-day exponential moving average in late January, JBL stock is back near highs. It’s quite extended now, meaning it’s too late to buy. Instead, wait for a low-volume pullback back to the 21-day line.
The company’s next earnings report isn’t due until March.
Composite Rating: 96
Latest-quarter EPS % change: +20%
Latest-quarter sales % change: 12%
Five-year annualized EPS growth rate: 29%
Annual return on equity: 48%
Up/down volume ratio: 1.5
Iridium blasted out of a lengthy consolidation in early October. It held gains pretty well after that and eventually formed a flat base near its 10-week line with a 53.71 entry.
IRDM broke out powerfully from this base during the week of January 6. The catalyst was news of a partnership with Qualcomm (QCOM) to enable satellite messaging and emergency services to Android phones.
The company is a provider of mobile voice and data communication services. Iridium is set to report its first-ever annual profit this year, with growth seen surging in 2023, up 150%.
IRDM stock came down to its 50-day moving average on Oct. 20 after reporting earnings, but it didn’t take long for IRDM to find support.
Revenue increased 14% to $184.1 million, Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, contributed 76% of total revenue in the quarter.
Inside the earnings release, CEO Matt Desch said, “We have continued to see strong momentum across all commercial business lines. Based upon these trends we are increasing our full-year outlook for service revenue growth and EBITDA, and we expect 2022 will be another record year.”
A couple of analysts chimed in with comments after the results. Raymond James maintained a strong buy rating and lifted IRDM’s price target to 60. Morgan Stanley, meanwhile, maintained an overweight rating and raised IRDM’s price target to 66.
A pullback to the 10-day moving average (currently around 56.50) could give an alternate entry for IRDM stock, but only if bounces with conviction. Many of the best stocks to buy find support at their 10-week lines after breakouts.
Iridium’s next earnings report is due Feb. 16 before the open.
Composite Rating: 78
Latest-quarter EPS: 2 cents vs. a loss of 2 cents
Latest-quarter sales % change: +14%
Five-year EPS growth rate: n/a
Annual return on equity: n/a
Up/down volume ratio: 1.0
The enterprise software stock is also among the best stocks to buy and watch as it hovers above a 184.60 entry after a breakout from a bottoming base on Feb. 1. Lately, many of the best stocks to buy have gone on to nice gains after breakouts from bottoming bases.
Why This IBD Tool Simplifies The Search For Top Stocks
Workday provides cloud applications for finance and human resources. It hasn’t announced an earnings date yet, but last year it reported on Feb. 28.
For the current quarter, the Zacks consensus estimate if for adjusted profit of 89 cents a share, up 14% from the year-ago quarter. Revenue is expected to increase 19% to $1.63 billion
For its current fiscal year 2023, annual earnings are expected to fall 12% to $2.53 a share, with growth ramping back up in 2024, up 31.
When Workday last reported earnings in late November, shares gapped up and rose xx on Nov. 28 after the company reported profit of 99 cents a share, down 10%. Revenue increased 20% to nearly $1.6 billion.
Workday also upped the low end of its fiscal 2023 subscription revenue guidance to $5.555 billion to $5.557 billion, or 22% growth
As part of its earnings release, the company also announced a stock buyback of up to $500 million over the next 18 months.
Composite Rating: 89
Latest-quarter EPS % change: -10%
Latest-quarter sales % change: 20%
Three-year annualized EPS growth rate: 37%
Annual return on equity: 27%
Up/down volume ratio: 1.3
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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