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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? Union Pacific (UNP), Palo Alto Networks (PANW), UnitedHealth (UNH), Broadcom (AVGO) and Old Dominion Freight Line (ODFL) are prime candidates.
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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 is now trying to rally again following bearish recent action. Nevertheless, the Nasdaq, S&P 500 and the Dow Jones Industrial Average are currently trading beneath the key 200-day moving average.
With the market back in a confirmed uptrend now is a good time to be making new buys. Investors should take action to increase exposure now, though a gradual approach makes sense given the volatility of the past few months. The stocks below are potential 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
- Union Pacific
- Palo Alto Networks
- UnitedHealth
- Broadcom
- Old Dominion Freight Line
Now let’s look at Union Pacific stock, Palo Alto Networks stock, UnitedHealth stock, Broadcom stock and Old Dominion Freight Line stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Union Pacific Stock
UNP stock is near the top of its buy zone after previously chugging past a shallow flat-base buy point of 256.21.
Volume was higher than normal on the breakout, a positive sign. The stock also showed strength by battling back from pressure early last week.
In addition, this is a first stage base. Such early-stage patterns are more likely to net big gains.
The relative strength line surged into new-high ground ahead of Union Pacific stock. It is in the top 9% of stocks in terms of price performance over the past 12 months.
Earnings have grown by an average of 35% over the past three quarters, which is above CAN SLIM requirements.
The recent IBD Stock Of The Day has also been attracting institutional investment. In total, 42% of shares are held by funds, according to MarketSmith data. Notable holders include the Franklin Growth A (FKGRX), an actively managed mutual fund.
The ongoing crisis in Ukraine should help UNP stock. A study about the 2008 oil price spike found that 75% of shippers using intermodal deliveries — requiring both truck and rail — increased their reliance on intermodal during that period.
The benefits for railroad operators amid high oil prices depend on a range of factors, including flexibility, efficiency and service.
This plays to Union Pacific’s strengths. It is a big believer in precision scheduled railroading, which minimizes dwell time — the time customer carloads wait for an available to train to get moving — while extending train length.
In 2021 Union Pacific saw its average train length swell by 2% to 9,300 feet.
Amid Covid supply-chain issues that bottlenecked ports and halted some auto production, Union Pacific saw 1% less volume in 2021 vs. 2019. Meanwhile, operating-efficiency gains helped fuel a 16% increase in operating income.
Deutsche Bank analyst Amit Mehrotra wrote in a research note that Q1 rail volumes through February were down 3.8% from a year ago among public Class 1 railroads. UNP volume, up 4.4%, “is the only rail outperforming expectations.”
As supply-chain constraints ease through 2022, Union Pacific stands to benefit from a recovery.
Looking For The Next Big Stock Market Winners? Start With These 3 Steps
Palo Alto Networks Stock
Palo Alto Networks stock rebounded powerfully amid the Ukraine crisis. The cybersecurity play is back above its old 572.77 consolidation pattern entry. While technically no longer valid amid a sharp pullback, it is also about where a new short trendline buy point falls. It rose 5.7% last week and is up nearly 8% so far this week.
PANW stock is battling back after finding support at its 50-day moving average, The RS line for Palo Alto stock is just off record high levels, according to MarketSmith chart analysis. That’s a strong positive.
On Mar. 3, PANW stock jumped 13% in choppy but active trade. It bounced back above its short-term moving averages after coming close to a test of the 200-day line. The gains came as the escalating Ukraine-Russia conflict raised fears of more cybersecurity attacks, after the U.S. accused Moscow of a hack against its Slavic neighbor earlier.
The California-based cybersecurity company shows a very strong Relative Strength Rating of 96. This puts it in the top 4% of stocks over the past 12 months. Palo Alto Networks has a solid EPS Rating of 81 out of 99.
In fiscal 2021, Palo Alto earnings rebounded 26% after it took a pandemic hit the prior year. Wall Street expects PANW earnings to grow a further 19% in 2022 and 24% in 2023, according to FactSet.
The recent IBD Stock of the Day is strong on the bottom line. Sales growth ranged between 28% and 32% the last three quarters, above the 25% or higher level a CAN SLIM investor would want to see. Sales are seen growing 19% in all of 2022 and 24% in 2023.
Palo Alto is worth considering as cybersecurity stocks have been storming higher due to the Russian-Ukraine conflict.
The company also impressed analysts with its most recent earnings report.
“Palo Alto delivered another strong quarter with broad-based outperformance highlighted by 70% next-gen ARR growth and hardware sales that continue to allude supply-chain challenges as the company takes share on accelerating demand trends,” said RBC Capital analyst Matthew Hedberg in a report.
At Wells Fargo, analyst Andrew Nowinski said in a report: “The key takeaway was the next-gen ARR, which reached $1.43 billion, with net new ARR of $166 million.”
For the current quarter ending in April, Palo Alto said it expects per-share earnings in a range of $1.65 to $1.68 on revenue of $1.355 billion.
Analysts had projected earnings of $1.63 a share on revenue of $1.346 billion. Palo Alto forecast billings of $1.6 billion compared with analyst estimates of $1.587 billion.
UnitedHealth Stock
UNH stock has a double-bottom buy point of 501.03. A handle entry has also emerged on the double-bottom pattern, which offers a lower buy point of 500.10. It is trading above both these levels now.
The relative strength line is one reason to be bullish. It has just hit a new high, an encouraging indicator as it gets set to make a breakout attempt.
Much of the base was constructed above the 50-day moving average, which is another plus in such a pressured market.
All-around performance is top class for UNH stock, which is reflected in its very strong Composite Rating of 92 out of 99.
Earning in particular are a big strength though, with its EPS Rating a mighty 95 out of 99. Earnings have grown by an average of 24% over the past three quarters.
UnitedHealth earnings per share surged 78% to $4.48 in Q4. Revenue rose 12.6% to $73.7 billion. Management maintained full-year 2022 for adjusted EPS of $21.10 to $21.60. FactSet analysts expect UnitedHealth to earn $21.62 per share.
While it is the second-largest healthcare company behind CVS Health by revenue, and the biggest insurance company by net premiums, UNH is still chasing growth.
CEO Andrew Witty touted performance in two key areas of its growth strategy. First was transition of patients to Optum-led value-based care and second was Medicare Advantage sign-ups.
“These and the broader performance across the enterprise confirm our confidence in our ability to advance our stated growth strategies and to support our long-term 13% to 16% EPS growth rate,” he said in a call with investors.
Lower Covid cases will spur more people to visit the doctor or hospital, driving up expenses. But the insurance giant also should get more members.
UnitedHealth is one of a several health insurers showing strength. Rival Anthem (ANTM) was previously named Stock Of The Day after it cleared a consolidation with a 470.12 entry.
Market Changes Character: What To Do Now
Broadcom Stock
Broadcom stock sits some way below an official buy point of 677.86, MarketSmith analysis shows.
But with the chipmaker above its 50-day moving average, a further move to 614.74, 10 cents above the Feb. 10 rally attempt peak, could be used as an early entry.
The stock popped 5.6% last week. The relative strength line is also spiking again following a dip, a good sign going forward.
AVGO stock boasts four consecutive years of annual earnings growth. Annual EPS is seen spiking by an impressive 27% in 2022. Analysts have been revising their estimates upwards of late, which is a positive.
This comes on top of the company seeing profits per share growing by an average of 26% over the past three quarters.
Earlier this month the chipmaker got a boost after it surpassed Wall Street’s targets for its fiscal Q1 and predicted accelerating sales growth in the current quarter.
The San Jose, Calif.-based company saw EPS jump 27% to $8.39 while sales popped 16% to $7.71 billion. Analysts had expected Broadcom earnings of $8.13 a share on sales of $7.61 billion, according to FactSet.
For its fiscal second quarter ending May 1, Broadcom forecast sales of $7.9 billion, up 20% year over year. Analysts had predicted $7.43 billion in sales.
“Broadcom’s record first-quarter results were driven by strong enterprise demand, and continued investments in next-generation technology by hyperscale and service providers,” Chief Executive Hock Tan said in a news release. “Our second-quarter outlook projects year-over-year growth to accelerate.”
Old Dominion Freight Line Stock
ODFL stock sprinted past its 50-day line last week. It’s is currently near a trendline starting with its Dec. 7 high, which offers an aggressive entry. The less-than-truckload freight leader closed just below another early entry of 328.46, just above its March 4 short-term high.
It will be looking to keep up its momentum after rising gaining 7.2% during the past week. But the long uptrend since the end of the 2020 coronavirus bear market shows that Old Dominion is capable of beating the S&P 500 in the long term.
ODFL stock has an official buy point of 373.68, which means investors can choose to wait to see its performance going forward before establishing a position.
Old Dominion stock currently heads the field in the Transportation-Truck Industry Group.
Overall performance is very strong, with earnings the biggest strength. Over the past three quarters EPS has grown by an average of 60%, well clear of CAN SLIM requirements.
The trucking giant specializes in efficient less-than-truckload services. Demand has picked up sharply since the first quarter of 2021.
Sales jumped 14%, 47%, 32% and 31% vs. year-ago levels in the past four quarters. That, in turn, has boosted the bottom line by 53%, 85%, 44% and 50% over the same period.
Big money is keen on the stock, and fund have been adding to their holdings of late.
The highly-rated T. Rowe Price New Horizons fund is a key mutual fund holder.
ODFL is currently trying to manage its way through higher fuel prices and labor costs.
Nevertheless, U.S. economic growth generally remains on solid footing. That is good for truck freight volumes, according to trade group American Trucking Associations.
The industry’s largest problem isn’t one of demand, but of securing adequate capacity in the face of constraints, says ATA Chief Economist Bob Costello.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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