With the Nasdaq composite at one point in June sinking almost 35% below a 16,212 peak set last November, some investors may think now is a time to buy. But among thousands of stocks, where should they start? This story showcases five Nasdaq stocks to watch right now.
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The IBD approach emphasizes several simple yet historically proved and powerful factors that lead to long-term success. And they go beyond simply investing in a healthy stock market environment.
If you want to achieve market-beating returns, first do this. Reserve your precious capital for just companies with truly strong fundamentals. This means aiming at Nasdaq-listed companies with outstanding records of profit growth, return on equity, profit margins and sales increases. These factors make up both the C and the A in CAN SLIM, IBD’s seven-point investing paradigm.
Second, seek only those Nasdaq stocks that outperform the rest of the pack. If you confine your search to those stocks whose price performance proves superior to at least 80% or 90% of the entire market or more on a rolling 12-month basis, then you’re really focused on stocks that have the potential to break out to new highs and make major price runs.
Third, get on the side of institutional investors that are actively accumulating shares over months and even years. Their long-term power on Wall Street can never be overstated. IBD’s Accumulation/Distribution Rating will help investors in that regard. Monitor the quantity and quality of institutional ownership; this helps you assess the I in CAN SLIM.
The CAN SLIM Investment Paradigm: 7 Keys To Excellent Results In Growth Stocks
Nasdaq Stocks To Watch: Screening For Winners
To select five stocks, MarketSmith screener allows users to pick companies within IBD’s database that rate highly in terms of Earnings Per Share Rating, Relative Strength Rating and SMR letter grade, which stands for sales, profit margins and return on equity. A simple screen set up on MarketSmith demands that stocks show an 85 EPS score or higher, at least an 85 for RS, and an A grade (on a scale of A to E) for SMR.
Plus, stocks that did not have either an A or B for Accumulation/Distribution Rating didn’t make the cut. This rating analyzes price-and-volume action in a stock over the past 13 weeks. An A or B grade indicates fund managers are net buyers of the stock. A C grade points to a neutral amount of institutional buying vs. selling.
Finally, each stock had to hold a 95 Composite Rating, which combines all of IBD’s key ratings with recent price action.
5 Nasdaq Stocks To Watch
Amid the bear-market decline, just 11 companies made the cut this week. We highlight some notable fundamental, technical and mutual fund ownership elements for each stock as follows.
Stock No. 1: Funko (FNK) has been building a yearlong large cup base since May of 2021. It boasts a 99 Composite Rating, 90 for EPS and a 97 for Relative Strength.
A trendline drawn across the highs within the base shows an early entry point near 22. After Tuesday’s broad market smackdown, FNKO is backtracking near that key level.
According to MarketSmith, the stock is triggering the RS line blue dot alert, another bullish sign of the stock’s underlying strength.
In the meantime, watch for a handle to possibly form before the stock reaches the cup’s left-side peak of 27.20. A handle pinpoints a final shakeout of uncommitted shareholders and clears the deck for a potential big move up as institutions seek shares in a big way.
Earnings per share at the designer and manufacturer of pop culture-related items in the past three quarters grew 26%, 31% and 42% vs. year-ago levels. Sales jumped 40%, 48% and 63% over the same time frame. On a 12-month trailing basis, sales have topped $1.1 billion.
Analysts polled by Wall Street expect earnings to rise 34% to $1.90 a share this year, which would be the highest in at least eight years.
Among Nasdaq stocks to watch, Funko ranks as a small cap with a market value of $1.1 billion, 50.8 million shares outstanding and a float of 18.1 million.
Consumer Spending Themes
Stock No. 2: International Money Express (IMXI) struggled on its breakout on May 4 in a base-on-base construction. Shares surpassed a 22.08 prime entry, but finished well below it the same session. Then IMXI lost support at the 50-day moving average.
The stock stabbed through the 50-day moving average multiple times in the past three months. Such action resembles a double bottom that offers a new buy point of 21.48. Now, IMXI trades only 11% below its 52-week peak. Compare that with the Nasdaq, which has slumped almost 32% off its 16,212 all-time high.
Earnings per share have grown 39%, 25%, 33% and 26% vs. year-ago levels. The top line expanded 37%, 26%, 28% and 21% over the same time frame. Sales also topped $100 million on a quarterly basis for four quarters in a row.
The number of mutual funds owning stock in IMXI has increased for at least seven straight quarters, to 275 at the end of the first quarter this year from 149 in Q2 of 2020.
International Money Express hosts a 97 Composite, a 96 EPS and 96 RS. Few strong Nasdaq stocks are hailing from the financial services sector.
Stock No. 3
Stock No. 3: Ulta Beauty (ULTA) staged a bullish breakaway gap twice in a row on May 26 and 27 after a robust earnings report.
Now, a new cup with handle appears to be forming. The new entry point is 429.58, or the highest price within the handle plus 10 cents.
Tuesday’s 3.6% slide disappointed, however. Great stocks ascend past their 50-day moving average before staging a breakout. ULTA is doing the opposite for now.
What about the handle that began forming on May 31 and generated a 426.93 buy point? It yielded a June 8 breakout that lasted only a day.
The bottom line bulged 54% to $6.28 a share as sales rose 21% to $2.35 billion. That 21% increase came on top of a 65% revenue boost in the year-ago quarter.
The cosmetics, hair care and personal care products retailer enjoyed a tremendous run and helped lead the market out of the ashes of the 2008-2009 Great Recession.
Ulta owns a 96 Composite, 89 EPS and 90 RS Rating. At the end of Q1 2022, 1,875 funds held shares, a 24% jump vs. 1,511 in Q1 2021. Plus, fund ownership has risen every quarter since the fourth quarter of 2020 (when it was 1,468).
Use The IBD Stock Screener To Find More Top Stocks To Watch
Five Nasdaq Stocks To Watch: Final 2
Stock No. 4: LPL Financial (LPLA) is building a new base that shows the elements of a cup with handle. But LPL’s pattern shows flaws.
For instance, the handle within the base shows a decline of almost 15% from head to toe (using intraday high and intraday low). You’d normally like to see the handle make a correction of no more than 8% to 12%, especially since the correction within the pattern exceeds 25%.
The correct buy point, for now, stays at 204.47. Drawing a trendline across the base’s highs may offer a lower entry point near 195.
Another point of concern? Within the current pattern, all of the biggest weeks in terms of volume came on down weeks in price. However, the week ended June 3 saw LPLA shares fall a trifling amount, even as turnover exploded to 7.59 million shares. That suggests institutional support. A chartist may even view that week’s action as a support week.
Also, the relative strength line has jumped into new highs, signaling strong outperformance vs. the S&P 500.
Earnings estimates are superb. The Street sees profit rising 37% this year to $9.62 a share, then vaulting 62% to $15.54 a share next year. Both consensus estimates recently got a boost.
The financial advisory giant boasts a five-year EPS growth rate of 28%. Sales have shown a growth acceleration phase since the second quarter of 2020, going from a 2% dip that quarter to gains of 3%, 9%, 17%, 39%, 38%, 32% and 21%.
How To Select, Buy And Sell Stocks For Long-Term Profits Consistently: Read This Column
Telecom Sector Leader
Stock No. 5: Clearfield (CLFD) is carving out a wide-and-loose cup with handle of its own. This means that volatility is exceptionally high, making it tougher to make profits on the future breakout. According to MarketSmith, CLFD holds an extremely high beta of 2.20.
Nonetheless, the IBD-style buy point for now is 69.34.
Clearfield’s ratings including a 96 Composite, 99 EPS and 94 RS. A B- Accumulation/Distribution Rating is mildly bullish.
Great breakouts occur in heavy volume, especially on the actual breakout day itself. But they also tend to succeed when the prior price action is tight and controlled. This indicates few willing sellers are hanging around the stock.
Just look at Clearfield’s tight weekly action seen in the last week of June 2020 and the first three weeks of July before CLFD leapt 24% in massive turnover during the week ended July 24.
That’s a massive breakout.
The maker of fiber optic telecom equipment and components is rare in its sector. Fundamentals are very strong.
Earnings per share have catapulted 120%, 57%, 475%, 440%, 100%, 141%, 226% and 144% vs. year-ago levels in the past eight quarters. Analysts surveyed by FactSet see the bottom line soaring 86% in fiscal 2022, ending in September, to $2.74 a share.
Sales have lifted 19%, 14%, 40%, 45%, 49%, 66%, 89% and 80% in the past eight quarters.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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Source: https://www.investors.com/research/nasdaq-stocks-to-watch-today/?src=A00220&yptr=yahoo