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? Advanced Micro Devices (AMD), PayPal (PYPL), Innovative Industrial Properties (IIPR), Floor & Decor (FND) and Twilio (TWLO) are prime candidates.
Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects a rising confidence that the economy will eventually recover from the coronavirus.
The broader stock market got a shot in the arm after Pfizer (PFE) and BioNTech (BNTX), then rival Moderna (MRNA), announced positive coronavirus vaccine test results. The Pfizer vaccine has just received FDA approval, and distribution is set to begin. However the stock market suffered a blow as attempts to get a new coronavirus stimulus package off the ground drag on.
It comes after a rally fueled by Joe Biden winning the U.S. presidential election. Though President Donald Trump is still disputing the result, his attempts to take the matter to the Supreme Court have failed.
Soaring coronavirus cases and new Covid restrictions are concerns. The dueling coronavirus headlines also have spurred some back and forth between stay-at-home stocks and equities that might fare better with the economy returning to normal.
With stocks moving powerfully and the market in an uptrend, it is a time to be looking for stocks near buy zones showing strength compared to the rest of the market.
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So why do the stocks chosen stand out? Before turning to that question, it is important to consider how one goes about choosing a stock in the first place. Superior fundamentals and technical action, and buying at the right time, are all part of a shrewd investing formula.
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
Never forget that the M in CAN SLIM stands for market. Most stocks, even the very best, will tend to 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.
The Dow Jones Industrial Average, Nasdaq and the S&P 500 are all around all-time highs. In addition they are all well clear of their 50-day moving averages. The whole market is back in an uptrend, and it is a good time to be considering opening new positions.
As you identify stocks, on a technical basis look for stocks with rising relative strength lines. Stocks that hold up amid tough conditions often bound to new highs once a market stabilizes.
Remember, things can quickly change, when it comes to the stock market. Make sure you don’t miss out on a rally by keeping a close eye on the market trend page here.
Best Stocks To Buy Or Watch
Now let’s look at AMD stock, PayPal stock, Innovative Industrial Properties stock, Floor & Decor stock and Twilio 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.
AMD is in buy zone after passing a double-bottom buy point of 88.82, MarketSmith analysis shows. AMD had formed a high handle or mini-consolidation around the top of 5% chase zone, but tested the 88.82 entry last week before rebounding somewhat. Investors could use that buy points or the high handle for entries.
The RS line has been gently ascending recently, though overall it has largely been moving sideways since August.
The Stock Checkup shows AMD earnings have grown by an average of 151% over the past three quarters. This is above the 25% growth sought by CAN SLIM cognoscenti. It slowed to a still-strong 128% growth in the most recent quarter.
AMD stock holds an Accumulation/Distribution Rating of B-, which represents moderate buying from institutions. It boasts eight consecutive quarters of increasing fund ownership. Notable holders include the JPMorgan Large Cap Growth Fund (JLGMX) and the Fidelity Contrafund (FCNTX). These are both rated among the very best funds by IBD research.
Another key ingredient to the CAN SLIM formula is new products. AMD is making moves on this front.
In October the company unveiled its Ryzen 5000 series of central processing units. It claims they are the “fastest gaming CPUs in the world.”
“Gaming is at the heart of so much of what we do at AMD, whether you are talking about PCs or consoles or cloud gaming and mobile,” Chief Executive Lisa Su said during an online presentation.
AMD stock is on IBD Leaderboard.
The Leaderboard stock is near a buy zone after breaking out of a short cup base. The ideal buy point is 215.93.
While it is not an ideal cup base, as it consolidated over less than six weeks, there are some impressive technical features. These include a solid reversal in the week that PayPal stock bottomed, as well as no fewer than eight up days in above-average turnover.
Like AMD, PayPal also has a high handle or mini-consolidation as a possible additional entry.
The relative strength line has been making progress in recent weeks, and is on the verge of reaching new ground.
PayPal stock has an perfect Composite Rating of 99. A strong mixture of stock market performance and earnings growth are key features of the payment processor. IBD Stock Checkup shows EPS has swollen by an average 30% over the past three quarters. Growth over the past three years also exceeds CAN SLIM requirements.
At the start of November the company topped analyst views for Q3 earnings, with revenue also edging expectations. E-commerce was continuing to boom amid the Covid-19 pandemic. However, the company did not provide preliminary guidance for fiscal 2021, which briefly spooked investors.
PayPal is still looking to innovate, with the stock getting boosted at the end of October on the news it has launched its own cryptocurrency service. San Jose, Calif.-based PayPal said customers will be able to use its online digital payment system to buy, sell and hold Bitcoin and other virtual coins. In addition, its customers will also be able to use cryptocurrencies to shop at the 26 million merchants on its network starting in early 2021, the company said. PayPal has 346 million active accounts.
Innovative Industrial Properties Stock
Innovative Industrial Properties is a pot stock with a difference, as it focuses on providing the land to grow the crop. The marijuana stock is up more than 300% on its coronavirus crash lows.
The stock formed a three-weeks-tight pattern a few weeks ago, with its 165.09 buy point still valid.
This is a pattern that gives investors the chance to add shares. The first time an investor should buy a stock is when it clears the proper buy point of a base pattern. The follow-up buy should only be a fraction of the full-size position, such as one-eighth or a quarter. An aggressive investor might use 160.25, above the Nov. 23, as an early entry.
Innovative Industrial Properties stock could be on its way to building a flat base in another day or two, with the same 165.09 buy point.
The recent IBD 50 Stocks To Watch pick is well clear of its 50-day moving average, which is a bullish indicator. In addition, the relative strength line has been generally making progress. However, it has leveled off somewhat as the stock pauses.
The pot stock has a very strong IBD Composite Rating of 94. Stock market performance is key to this, with its Relative Strength Rating a healthy 91. The stock is up more than 100% so far in 2020.
Earnings are growing at a decent clip, with EPS swelling an average 86% over the past three quarters. However, it slowed to 49% growth in the most recent quarter.
Big institutional money is buying into the stock, which is an important consideration for the CAN SLIM investor. It boasts an Accumulation/Distribution Rating of B, which represents moderate buying among institutions.
Noteworthy holders include the American Century Small Cap Growth Fund (ANOIX) and the Wells Fargo Fundamental Small Cap Growth Fund (EGRYX). These are both rated as being among the best performing funds by IBD research.
Innovative is a real estate investment trust that focuses on the cannabis industry. That is a business model that frees real estate-focused companies from the usual federal corporate taxes, so long as they return their free operating cash flow to investors in the form of a dividend.
Dividends in the group can therefore be high yielding. IIPR stock’s annualized yield is currently 2.7%. This beats the S&P 500 average yield of 1.6%.
Piper Sandler analyst Daniel Santos is rating IIPR stock as overweight with a 160 target. He believes there is plenty of room for growth ahead for the marijuana stock.
“The clear winner this election was IIPR as major states like (New Jersey) approved cannabis, while a divided government means federal legalization is likely still years away. IIPR delivered a stellar quarter as net operating income drove the outperformance,” he said in a Nov. 4 research note. “The company committed around $150 million of capital in the quarter at around 13% yields. With $245 million of capital left to invest and a pipeline boosted by further state legalizations, we see significant growth for quarters to come.”
IIPR stock also is on Leaderboard.
Floor & Decor Stock
An encouraging sign for Floor & Decor stock is the fact it recently successfully found support at the 50-day moving average.
Investors can also use rebounds from this key technical benchmark as a buying opportunity. FND stock also broke a short trend line in its handle on Dec. 3 as it bounced from its 50-day line, which is another encouraging sign.
The growth stock’s relative strength line has been gaining for the last few weeks. More encouragingly it managed to halt a period of underperformance which started in mid October just before this.
Ideally, the RS line — which compares a stock’s performance with that of the S&P 500 — will be at or near new highs as the stock breaks out. Some outperformance would be enough to see it reach new ground. So far in 2020 the stock is up almost 77%. It has also gained almost 270% on its coronavirus crash lows.
FND stock has a very strong Composite Rating of 97. Both earnings and price performance are strong. The Stock Checkup shows earnings have grown by 20% over the past three quarters, which is below CAN SLIM requirements. However EPS jumped by 107% in the most recent quarter.
The Atlanta-based company is a specialty retailer of hard surface flooring and related accessories. The company operates 128 warehouse-format stores across 30 states.
Floor & Decor benefited from improving housing market conditions in the third quarter. That, along with a rush of homeowners repurposing and personalizing their homes, has helped boost Floor & Decor’s top and bottom lines.
“We are encouraged that housing market conditions improved in the third quarter from low interest rates. These factors, among others, leave us optimistic about the remainder of fiscal 2020,” CEO Tom Taylor said.
Twilio stock is in buy zone after breaking out of a cup-with-handle base with a 332.72 buy point. Shares jumped 7.2% last week to 342.41, a record high, after rebounding from their 10-week line once again. More than 100% of that gain coming on Thursday-Friday.
The RS line has also been advancing again in recent weeks, close to a new high.
TWLO stock has a strong Composite Rating of 93. At the moment stock market performance is outshining earnings. It has a stellar RS Rating of 97, while its EPS Rating is a less impressive 71.
When the software maker reported results at the end of October it said it had 208,000 active customer accounts, up 21% year-over-year.
For the current December quarter, Twilio forecast revenue in a range of $450 million to $455 million, which bettered analyst estimates of $437 million. Amid steep investments, Twilio said it expects a loss in a range of 8 cents to 11 cents vs. analyst estimates of 1 cent adjusted profit.
The company’s software helps app developers embed voice, text and video, and facilitates communication between cloud-based platforms. Demand for that software has risen due to the pandemic, which has reduced face-to-face contact.
It is continuing to improve its products, and in October agreed to buy Segment, a specialist in digital customer data collection, for $3.2 billion in stock
“Segment is a leading independent customer data platform and could act as a catalyst for TWLO to enter the ring with Salesforce and Adobe for the battle for Customer 360,” Cowen analyst Derrick Wood said in a note to clients. Customer 360 is an industry term for software platforms that analyze customer marketing data.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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