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? Eli Lilly (LLY), Enphase Energy (ENPH), Neurocrine Biosciences (NBIX), Cardinal Health (CAH) and Arista Networks (ANET) are prime candidates.
XWith inflation worries high, and the Federal Reserve tightening rates aggressively, market action has been challenging so far in 2022. The Russian invasion of Ukraine also 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. While the market battled back amid a better than expected earnings season, the latest uptrend failed amid disappointing inflation data, which comes on the heels of Federal Reserve Chairman Jerome Powell's hawkish Jackson Hole speech. The S&P 500, the Nasdaq and the Dow Jones Industrial Average has all sunk below their 50-day moving averages. The Dow Jones and the S&P 500 have notched new lows for the year.
With the market back in a correction now is a time to avoid making any new buys. This will help prevent you getting sucked into a bear market trap. Reversals can be particularly severe at this time. Instead, now is a good time to build a watchlist of exceptional stocks such as those in the IBD 50. These names will tend to have rising relative strength lines. The stocks below are good candidates.
It is a good time to consider taking profits. In addition, stay on top of sell signals. Any stock that falls 7% or 8% from your purchase price should be jettisoned. Also beware of sharp breaks below the 50-day or 10-week moving averages.
Remember, there is still significant headline risk. Inflation remains a key issue while the Russia-Ukraine conflict is a wild card that has proved its ability to shake the market.
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
- Eli Lilly
- Enphase Energy
- Neurocrine Biosciences
- Cardinal Health
- Arista Networks
Now let's look at Eli Lilly stock, Enphase Energy stock, Neurocrine Biosciences stock, Cardinal Health stock and Arista Networks stock in more detail. An important consideration is that these stocks all boast impressive relative strength.
Eli Lilly Stock
LLY stock is just below a flat-base buy zone after previously clearing an ideal buy point of 335.43, according to MarketSmith analysis.
Shares have retaken the 50-day moving average, a bullish sign. The relative strength line has also surged to new highs.
Eli Lilly stock has been faring very well on the stock market. In fact, it is in the top 5% of stocks in terms of price performance over the past 12 months.
The diversified medical stock also boasts solid earnings. It currently holds an EPS Rating of 85 out of 99.
Analysts are particularly keen on its drugs Mounjaro and donanemab. Lilly already has approval for Mounjaro in patients with Type 2 diabetes. But the company is also testing it in patients with obesity and related cardiovascular/metabolic conditions. Lilly also is working in Alzheimer's with donanemab.
Mounjaro is the first in its class. It targets two hormones tied to blood sugar control. The Food and Drug Administration approved it for diabetes treatment in May.
"Mounjaro could be the biggest drug ever," UBS analyst Colin Bristow said in a report Thursday. He also sees LLY stock as the "best way to play" upcoming data from rival Biogen (BIIB) in Alzheimer's disease treatment.
Bristow upgraded LLY stock to a buy on Thursday and raised his price target to 363 from 335.
It is just a part of a suite of diabetes medicines sold by Eli Lilly. Mounjaro is becoming a more important portion of the group. For the week ended Sept. 16, prescriptions for Mounjaro accounted for 22% of all of Lilly's diabetes medicines, according to SVB Securities analyst David Risinger.
However he also said sale of LLY's most popular diabetes treatment Trulicity are continuing to grow despite very strong initial Mounjaro uptake.
In addition, UBS's Bristow has called Lilly's donanemab "the highest potential late-stage Alzheimer's asset." Lilly spokeswoman Kristen Basu said a Phase 3 study that aims to confirm donanemab's benefits in mid-2023.
Lilly popped last week after Biogen (BIIB) reported strong late-stage trial results for a similar Alzheimer's drug.
Enphase Energy Stock
Enphase Energy has just fallen under its fast-rising 50-day line. It is making its first test of the key level following a big run. Ideally, ENPH stock will consolidate for a time so it can form a new base.
The RS line for Enphase is still strong, especially on its weekly chart. It is in the top 2% of stocks in terms of price performance over the last 12 months.
The solar system inverter maker has experienced phenomenal growth over the past three years.
Earnings performance is very strong, with its EPS Rating coming in at a near-perfect 98. It has average EPS growth of 65% over the past three quarters. Earnings also accelerated in the most recent quarter.
Big Money has been getting behind the stock of late, with its Accumulation/Distribution Rating coming in at a strong B.
The Fremont, Calif.-based company is a leading provider of solar microinverters. Microinverters boost solar energy production, improve reliability in solar energy systems and support intelligent energy management.
Enphase also makes software to monitor energy generation and battery systems. The company focuses primarily on residential markets.
"As I have stated before, our strategy is to build best-in-class home energy systems and deliver them to homeowners through our network of distributors and installers, enabled by our installer platforms," Enphase Chief Executive Badri Kothandaraman said in the company's earnings call with analysts. "We have certified more than 1,600 installers worldwide to date, and we are continuing to win around 15 new installers a week in the U.S."
In 2021, earnings hit $2.41 a share, up 76% from 2020, and Wall Street sees continued growth in the bottom line. The Street has boosted its forecast and now sees earnings rising 70% this year to $4.09 a share.
Enphase is also trying to bolster sales in its battery storage systems powered by solar power. The firm posted a Q2 EPS increase of 109% to $1.11, well clear of analyst views. Revenue ran up 68% to $530 million. It estimated that third-quarter sales will be in the range of $590 million-$630 million, also above consensus.
Neurocrine Biosciences Stock
NBIX stock has fallen below a trendline entry but continues to form a flat base with a 109.36 buy point.
The relative strength line has just hit a new high. Neurocrine Biosciences stock previously rebounded from just above its 10-week line, an encouraging sign. It managed to hold above this key level after another test last week.
There are reasons for optimism. Firstly, biotech stocks are currently showing strength, with the industry group ranking fifth out of 197 groups tracked by IBD.
NBIX stock also boasts good all-around performance, which is underlined by its very strong IBD Composite Rating of 97.
Earnings are solid, its EPS Rating coming in at 81 out of 99, while it is in the top 7% of stocks tracked in terms of price performance over the past 12 months.
The company recently scrapped a high-profile treatment for essential tremor. Typically, a move like that would tank a biotech stock.
Instead, NBIX stock surged. It has held the bulk of those gains, even as Wall Street feels the pangs of a lower-than-expected jobs report and the continued worry of rising interest rates.
This is perhaps due to the fact it has plenty of other potential winners in the pipeline, according to analysts.
Mizuho Securities analyst Uy Ear notes Neurocrine also is testing the same drug that failed to help essential tremor patients in patients with a form of pediatric epilepsy. He expects early test results from that effort this year. Further, Neurocrine is expected to soon ask U.S. regulators to approve Ingrezza for Huntington's disease patients with movement complications.
Neurocrine also expects to begin studies in schizophrenia and an undisclosed disease this year. The company also could have test results for depression and seizure treatments next year.
"Looking into 2023, we see more room for optimism with top-line readouts expected across multiple mid- and late-stage programs," Ear said in a report to clients. He kept his neutral rating on NBIX stock, but raised his price target to 98 from 95.
Wedbush analyst Laura Chico is watching a drug called crinecerfont. Neurocrine is testing it in patients with an inherited disorder of the adrenal glands that affects growth and development. Neurocrine is on track to release additional testing data in 2023, she said in her note to clients.
During the June quarter, Neurocrine's biggest moneymaker, Ingrezza, brought in $350 million in net sales. Ingrezza treats an involuntary movement disorder called tardive dyskinesia. Sales surged by a double-digit percentage and beat expectations.
Neurocrine also sells a Parkinson's disease med called Ongentys and two women's health drugs with AbbVie (ABBV).
Cardinal Health Stock
Cardinal Health is making a first test of its 10-week moving average. A rebound from this level serves as an entry point, but market conditions raise the risks.
The RS line in particular is impressive for CAH stock. It has been generally been spiking upwards since early July, and is rebounding sharply after a brief decline.
Cardinal Health has been attracting attention from institutional investors of late. It currently holds an Accumulation-Distribution Rating of B+, which represents buying among institutions. In total. 55% of its stock is held by funds.
Highly-rated holders include the DFA TA US Core Equity 2 Fund (DFTCX) and the SEI Institutional Investments Trust Dynamic Asset Allocation Fund (SDLAX).
All-around performance is strong, with its Composite Rating a healthy 94. Earnings are not ideal, but it ended a five quarter period of declining EPS in the most recent quarter.
As a company within the highly defensive wholesale drug and supply industry, CAH has made its case as a less volatile growth stock.
It has been finding support following after a heavy-volume breakout from a cup base in August. The breakout marks Cardinal's best short-term action in years.
A weekly chart or monthly chart highlights how CAH has actually been a stubborn laggard since the start of 2018. And the monthly chart shows the stock breaking a nearly 7-year downtrend in magnificent monthly turnover in August.
The company's Pharmaceutical segment distributes branded and generic drugs. The Medical segment makes Cardinal Health-branded medical, surgical and laboratory products. After five straight quarters of declining earnings, adjusted profit in its latest reported quarter jumped 36%, with revenue up 11% to $47.1 billion.
It is a member of the prestigious IBD Leaderboard list of top stocks.
What To Do As Bear Market Intensifies
Arista Networks Stock
ANET stock began forming a new base in mid-August. It is shooting for a buy point of 132.97. This comes after a consolidating period stretching all the way back to 2021.
The relative strength line is at new highs, even with ANET stock below its 50-day and 200-day lines. It is in the top 8% of stocks in terms of price performance over the last 12 months.
Overall performance is excellent, with the stock holding a perfect IBD Composite Rating of 99.
Earnings have been accelerating for the past three quarters, with its EPS Rating coming in at a mighty 95 out of 99.
Arista's biggest revenue growth driver has been high-end ethernet switches that speed up communications among racks of computer servers packed into data centers.
Two of the company's biggest customers have been Microsoft (MSFT) and Facebook parent Meta Platforms (META).
Arista reported second-quarter results on Aug. 1 that beat estimates on earnings and revenue. Arista earnings rose 59% from a year earlier to $1.08 per share, topping estimates of 92 cents.
Further, revenue grew 49% to $1.05 billion vs. forecasts for $979 million, topping the $1 billion mark for the first time.
"In Q2 2022, we achieved our first billion-dollar revenue quarter, despite the challenges of an uncertain supply chain environment," said CEO Jayshree Ullal said in a news release.
"This record milestone further validates the customer value of Arista's differentiated cloud networking platforms, now adopted by many of the largest cloud and enterprise customers around the world."
In Q3 the firm is expecting revenue in a range of $1.025 billion to $1.075 billion. ANET stock analysts had predicted revenue of $996 million.
Arista is the top stock in IBD's Computer-Networking industry group. It ranks ahead of the likes of Digi International (DGII) and Sierra Wireless (SWIR) is third.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more analysis of growth stocks.
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