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? Apple (AAPL), Deere (DE), Travelers (TRV), Cheniere Energy (LNG) and CF Industries (CF) are prime candidates.
XSince the coronavirus bear market, stocks rebounded powerfully. The strong action reflected rising confidence that the economy will eventually recover from the coronavirus.
But with inflation worries growing, and the Federal Reserve taking a more hawkish approach to interest rates and bond purchase tapering, a correction is underway. The major indexes have broken through their 200-day lines, with most stocks suffering sharp losses so far in 2022. This makes buying stocks very risky at the moment.
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.
Brutal recent action has seen the IBD market outlook switch to "market in correction." A stock market rally that kicked off 2022 soon fell on its face. The Nasdaq has now fallen below its 200-day line for the first time since April 2020 while the S&P 500 and the Dow Jones Industrial Average are also both below this key benchmark.
The hope now is that stock market bulls can continue to help the S&P 500 hold firm near its 200-day line. But resolve will have to stiffen in the face of flaccid recent performance. Rally attempts so far have failed to hold up, bringing market performance into question.
With the current outlook investors should not be buying stocks. Now is a good time to be raising cash and it is especially important that you are entirely off margin.
Start by selling your weakest performing stocks first. If you have great conviction about a stock and have a profit cushion, consider holding through the correction. Sell signals must be followed strictly to avoid painful losses. Consider selling stocks that are less than 7% below the purchase price. With stocks that have been rising above their 50-day or 10-week moving averages, beware of sharp breaks below those lines.
It is also a time to be building a watchlist of fundamentally strong stocks with good technical setups. The stocks below are ideal candidates. Nevertheless, it remains crucial that investors stay disciplined and stick to sound buy and sell rules.
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
- Apple
- Deere
- Travelers
- Cheniere Energy
- CF Industries
Now let's look at Apple stock, Deere stock, Travelers stock, Cheniere Energy stock and CF Industries 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.
Apple Stock
AAPL stock is worth putting on your watchlist as appears to be forming a new base. The potential buy point here would be 182.23, according to MarketSmith analysis.
The stock has also just surged back above its 10-week moving average. This could serve as an alternative, lower cost, entry, but buying during a market correction is risky.
Apple stock is seeing its relative strength line hold around new highs, a sign of how bad the market sell-off has been. Stocks with strong RS lines can still lose ground in a correction or bear market, but they may among the first to break out in a new uptrend.
Apple stock has seen its Composite Rating shoot up to a very strong 95 out of 99. Earlier in January Apple became the first company to reach a market capitalization of $3 trillion, though it has now backed off this level.
The IBD Stock Checkup tool shows earnings growth is bouncing back in recent quarters following the Covid-19 pandemic. Apple stock got a boost after reporting earnings for Q1 of fiscal 2022 late Thursday. The RS line spiked and it shot back above its 50-day line.
It was the firm's best ever quarter for revenue, with all categories excluding iPads coming in above views. Apple did not give guidance for the current quarter, though executives were relatively upbeat. The firm has not given specific quarterly guidance since the Covid-19 pandemic began.
Apple's EPS growth has averaged 65% over the past three quarters. This is comfortably clear of the 25% earnings growth sought by the CAN SLIM cognoscenti.
Analysts see earnings growth of 8% growth in fiscal 2023. Investors will want to see CEO Tim Cook squeeze out more impressive gains.
With its iPhone business maturing, investors are looking for a new big growth driver for Apple stock. Services and wearables are seen as two key drivers.
In the September quarter, Apple's services revenue rose 26% year over year to $18.3 billion. Services include the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
One reason to be bullish on Apple is it continues to produce new products, which is a major success factor in the CAN SLIM system.
Speculation is reaching fever pitch that Apple is looking to make a self-driving electric car. In November Bloomberg reported Apple is aiming to launch self-driving EVs in 2025.
The firm recently introduced its first Mac computers with processors the company designed itself rather than those supplied by longtime partner Intel (INTC).
Apple executives showed off a lineup of Mac computers running the company's new M1 processor. The M1 chip delivers up to 3.5-times-faster central processing unit performance than Intel-based Macs. Chip foundry Taiwan Semiconductor Manufacturing (TSM) will make the chips for Apple, using its 5-nanometer process technology.
The M1 news comes after the firm revealed its iPhone 12 lineup of 5G-enabled smartphones as well as the HomePod Mini smart speaker. Apple has also introduced its sixth-generation Apple Watch smartwatches, new iPad tablets, Apple Fitness+ service and Apple One subscription service bundles.
Deere Stock
Deere stock has formed a cup with handle with a 386.65 buy point after consolidating for several months. The tractor stock is trying to plough ahead, rising 2.6% last week.
A pullback saw it once again test support at its 50-day and 200-day moving averages. It had previously flexed its muscles by rebounded back above the key levels in high volume.
The fact it is managed to pull away from here once again suggests is sowing the seeds for future success.
Its relative strength line spiked up as shares rebounded, but has some work to do to reach 12-month highs.
Stock market performance is strong, with its RS Rating coming in at 87 out of a best-possible 99. Earnings are even better, with its EPS Rating coming in at a near-perfect 97.
The recent IBD Stock of the Day has posted five straight quarters of earnings growth, four of them triple-digit gains. The Moline, Ill.-based company also reported four quarters in a row of revenue increases.
Deere is expected to report its fiscal first quarter earnings next month. FactSet analysts expect earnings to tumble 41.8% year over year to $2.25 a share, while revenue edges up 1.8% to around $8.2 billion.
Looking further ahead, the firm is expected to see full year EPS rise 14% in 2023.
Deere's fully autonomous tractor uses hybrid technologies including cameras, GPS and various AI programs. The goal is to give farmers the ability to put the tractor to work and go do something else, whether it's milking cows, stuffing scarecrows or even working off the farm.
"Overall, we viewed the event as a positive for DE, as it has the potential to offer significant SaaS/recurring-revenue opportunities that could offset some of the potential impact of long-term Ag trends away from grains," D.A. Davidson analyst Michael Shlisky said in a research note.
Meanwhile, inflation in the costs of labor, land, chemicals, or other inputs could curb farmers' ability to spend on equipment, such as Deere machinery. Higher interest rates, which the Fed seems poised to implement, also will make it more expensive for farmers or other key end-users to purchase Deere equipment.
If interest rates do rise, Deere's "sales and earnings could fall short of expectations," Shlisky wrote. "In addition, higher rates could lead to more past-due or defaulted equipment loans for DE."
Market Still Must Take This Step; What To Do Now
Travelers Stock
Insurance stocks are sometimes seen as boring. But that is definitely not the case at the moment for industry heavyweight Travelers.
The stock currently sits in its buy range from a 163.26 buy point. It is actionable as high as 171.42.
The relative strength line got a boost after the firm posted results. The Dow Jones stock started last week in fine fettle. While it gave up some of its gains it ultimately the week with a gain of 2.6%.
TRV stock has a strong, but not ideal, IBD Composite Rating of 82. At the moment stock market performance is leading earnings, suggesting investors see strong EPS performance ahead.
Insurance stocks have been benefitting from a broad recent rally in financials. Insurers invest a lot of their premiums in long-term bonds, so rising long-term Treasury yields are a positive for long-term profitability.
Travelers stock has been getting boosted by a rise in the 10-year Treasury yield. There are good reasons to believe rates will trend higher for the foreseeable future as the Federal Reserve has been indicating it will pursue a more hawkish approach.
Markets are pricing in at least four Fed rate hikes in 2022, starting in March, with Bank of America predicting seven quarter-point cuts.
The blue chip was given a boost after Travelers easily beat fourth-quarter estimates January 20.
Travelers posted a 5.9% EPS gain, to $5.20. Revenue rose 10% for the quarter, to $7.995 billion.
Chairman and CEO Alan Schnitzer boasted about the firm's credentials as a technological powerhouse following the firm's latest report.
"We're enriching 160 years of insurance expertise by investing in digital tools and virtual capabilities, deploying robotics and proprietary AI models, and hiring and developing top data scientists, engineers, roboticists and meteorologists, among others, to build the insurance company of the future," he said in a news release.
Cheniere Energy Stock
Cheniere Energy cleared a trendline entry around 106.60 in early January, then briefly topped a flat-base buy point of 113.50 a few days later.
LNG stock is now close to its buy point again after rallying back above its 50-day line. That buy point officially is no longer valid given LNG stock's brief tumble the market set at least a short-term bottom.
Its RS line barely dipped from record highs as stocks in general retreated, a sign of just how fierce the overall market sell-off was. It is now moving higher again.
The stock has been on an uptrend since late March 2020.
One reason for investors to be cautious is the stock's weak EPS Rating. At the moment it is stock market performance that is doing the heavy lifting, with its RS Rating a mighty 97-out-of-99.
With energy stocks outperforming of late, LNG stock has won a spot on the IBD Leaderboard.
Cheniere is the largest producer of liquefied natural gas (LNG) in the U.S. It also has operations internationally.
It provides cleans, secures and LNG to integrated energy companies, utilities, and energy trading companies worldwide.
The U.S. has become a major LNG exporter in the last few years. This is largely due to the ramp up of Cheniere's Sabine Pass terminal in Louisiana.
In 2018 the firm signed an agreement with CPC Corporation, Taiwan to supply liquefied natural gas for 25 years in a contract worth an estimated $25 billion.
Taiwan is the world's fifth biggest importer of LNG.
Tensions are mounting between the West and energy superpower Russia over Ukraine. Those headlines could drive LNG stock up or down, as Russian military action could spur Europe to buy more liquefied natural gas from the U.S.
Market Rally Still Must Take This Step; 5 Key Earnings
CF Industries Stock
The fertilizer company is trying to get its nose past a new ascending base. The buy point here is 74.87.
The ascending base is rare, but it can set up powerful moves in stocks with the strongest fundamentals. The relative strength line has just hit fresh heights, a bullish sign indeed.
CF stock is rebounding from its 50-day line, and is now above a trendline. This can be used as an aggressive entry point by experienced investors. Traders also might use last week's high of 72.47 as another early entry.
Since November, CF has logged numerous gains in heavy turnover on its daily chart.
The fertilizer firm is coming out of a slump. If recent improved performance continues investors could soon be enjoying the sweet smell of success.
The stock currently holds a perfect Composite Rating. It is bolstered by strong earnings and price performance.
Big money is also getting behind the stock, with its Accumulation-Distribution Rating coming in at a best-possible A+.
CF continues to see strong demand due to high commodity crop prices.
Wall Street sees earnings soaring 97% in 2022.
Fertilizer pricing dynamics are surely driving the rise in CF stock. Yet the company's moves to position itself as a green hydrogen play could extend its mileage among the growing legion of environmentally-minded investors.
The company also announced carbon capture and storage efforts as part of its plan to cut company emissions by 30% by 2030.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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