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? Nvidia (NVDA), Snap (SNAP), Lennar (LEN), Square (SQ) and Mercado Libre (MELI) are prime candidates.
Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects rising confidence that the economy will eventually recover from the coronavirus.
Covid remains a concern, but cases have tumbled as vaccinations reach more and more Americans. Nevertheless, the rising number of cases of the new Delta variant is an emerging worry.
The major indexes have shown strength by bouncing back strongly from recent challenges, and managed to grind once again to fresh heights last week.
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.
The stock market has suffered a few pullbacks amid inflation fears and concerns about the rise of the delta variant of the coronavirus weighing on the market. But the market is once again back to bullish ways, bolstered by an encouraging earnings season so far.
The broad S&P 500 and the tech-heavy Nasdaq rebounded on Friday after a chastening pullback at the start of the week. It means that both managed to finish clear of the key 50-day moving average. The Dow Jones Industrial Average managed to rebound back after testing the key technical benchmark.
The market is back in a confirmed uptrend. Nevertheless, it is important that investors stay disciplined and stick to sound buy and sell rules, especially as the the market has rallied back toward extended levels.
Now is a good time to be buy fundamentally strong stocks that have built sound chart patterns. The stocks featured below are potential candidates.
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
- Mercado Libre
Now let's look at Nvidia stock, Snap stock, Lennar stock, Square stock and Mercado Libre 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.
Nvidia stock is in a buy zone after passing a cup with handle entry point of 208.85, MarketSmith analysis shows. The stock previously rebounded from its fast-rising 10-week moving average. After a pre-earnings pullback, it surged back above the key benchmark Thursday and continued to gain Friday. These moves saw exposure to the stock increased on the prestigious Leaderboard list of top growth stocks and join SwingTrader.
The graphics-chip maker pulled back as the broader stock market retreated. Given its strong run, the pullback was not surprising for NVDA stock. This gave the stock a chance to consolidate and offer a new entry.
The relative strength line is trying to make progress again after a dip during its consolidation. While it slipped again slightly ahead of earnings the market responded well to its report after the close Wednesday. From a weekly perspective, the RS line is nearing new highs.
Nvidia stock has a near perfect IBD Composite Rating of 98. Stock market performance is currently slightly lagging its excellent earnings, but is catching up rapidly. So far this year the stock is up almost 60%, which far outstrips the S&P 500's gain of just over 18%.
Nvidia beat Wall Street's targets for Q2 on strong gaming sales and solid data-center processor revenue Wednesday. It posted adjusted EPS of $1.04 per share on sales of $6.51 billion. Stock rose in extended trading.
For the current quarter, Nvidia expects to generate sales of about $6.8 billion, up 44% year over year. It did not give a per-share earnings target. Wall Street had predicted Nvidia earnings of $1.05 a share on sales of $6.57 billion in the fiscal third quarter.
Over the past three quarters, EPS has grown by an average of 87%. This is well clear of CAN SLIM requirements for 25% growth.
Such performance has won it admirers on Wall Street. This is reflected in its Accumulation/Distribution Rating of B-, which represents moderate buying over the past 13 weeks. Noted holders include the like of the MFS Growth A Fund (MFEGX)
In mid-April, Nvidia unveiled its first central processing unit, or CPU, called Grace. Nvidia currently sells graphics processing units, or GPUs, which act as accelerators for CPUs made by other companies. With its own CPU, Nvidia will offer a more complete system for data centers, in a move that is seen as a direct challenge to Intel (INTC) and Advanced Micro Devices (AMD).
The stock is currently just under a buy zone after previously passing a long consolidation with a buy point of 73.69. It has traded around the buy zone since a big post-earnings gap up, reaching 80.85 on Aug. 10.
A move back above the 73.69 buy point would also bring Snap stock clearly above its 21-day line and break a downtrend in the mini-consolidation since its gap up.
The relative strength line has also been taking a breather after a sharp post-earnings spike. Investors will want to see it build momentum here.
Snap has a strong Composite Rating of 93. At the moment stock market performance is far more impressive than earnings, with the firm yet to turn an annual profit. Since the start of the year, SNAP stock is up around 45%.
Institutional support is solid for Snap stock. It boasts eight consecutive quarters of increasing fund ownership, and an Accumulation/Distribution Rating of C+. In total, 50% of stock is held by funds.
When the firm posted results July 23 it reported adjusted earnings of 10 cents on revenue of $982 million. Analysts expected Snap to report a loss of 1 cent on revenue of $845 million. Revenue jumped 116% from the year-ago period.
Daily active users jumped 23%, or 55 million, to 293 million, above estimates of 290 million.
"Snap delivered very strong second-quarter results and provided an excellent third-quarter outlook," Monness Crespi Hardt analyst Brian White said in a research note. "The results demonstrate that Snap has dramatically improved its operational execution over the past couple of years, successfully leveraged new innovations, and enhanced its ad tech stack to capitalize on a greatly improved digital ad-spending environment."
The social media firm claims it is the best way to reach millennials and teenagers. Big consumer brands have increasingly spent more of their digital advertising dollars on Snap's platform.
In mid-May, Snap introduced its first augmented-reality smart glasses called Spectacles. The company previously released camera-embedded sunglasses under the same name.
"Snap has continued to differentiate with unique content and innovative experiences for users," Third Bridge Group analyst Scott Kessler told IBD. "Our experts say Snap has done the best job in terms of social media AR/VR features and functionality, even though Facebook bought Oculus, a leader in this area, some seven years ago."
The new Spectacles aren't for consumers yet. The company is making them available to software developers to see what sorts of applications they can create with them.
LEN stock is just under a buy zone after previously passing a a cup with handle base buy point of 108.06, according to MarketSmith analysis. Investors may prefer to focus on an alternate handle entry of 110.24.
Lennar stock is looking bullish after several other homebuilders rallied on strong earnings. Homebuilders could be ready to go another run after a period of consolidation.
The relative strength line is an area where investors will want to see continued improvement. It is off consolidation highs, but has been making progress of late. It is important it can find momentum again. Lennar is another strong performer in 2021, gaining more than 38%.
Earnings performance is the foundation of the homebuilder stock's success, with its EPS Rating a muscular 94 out of 99. Over the past three quarters, earnings have grown by an average of 51%. This is double the growth level sought by CAN SLIM connoisseurs.
Last month the recent IBD Stock Of The Day reported Q2 earnings of $2.65 per share, a 61% jump from the year-ago quarter. Sales grew 22% to $6.4 billion. Deliveries rose 14% to 14, 493 homes. New orders jumped 32% to 17, 157, with a value of $7.6 billion. Lennar's backlog is up 38% to 24,741 homes.
Lennar management still expects to close 62,000 to 64,000 units in fiscal 2021. But it raised its outlook for the average closing price to $420,000 from $400,000.
Lennar also sees gross margin improvement to 26.5% to 27% from a prior estimate of 25%.
"Our second quarter homebuilding gross margin of 26.1% was the highest second quarter percentage in the company's history, and a 450 basis point improvement over the prior year," Co-CEO Rick Beckwitt said in a statement. "The improvement was driven by a higher-than-expected sales price per home delivered of $414,000, reflecting higher sales prices in most of our markets, partially offset by higher land and construction costs."
Lumber prices, which spiked 300% to all-time highs during the pandemic, have tumbled in recent weeks.
However, there are signs the housing market is cooling off. Census data show new-home sales dropped in June to their lowest levels since the early days of the pandemic in April 2020.
PayPal rival Square has fallen back into a base after surging earlier this month. Shares rebounded on Aug. 20 from the 10-week line, and is right at a short downtrend, offering aggressive entries. Investors might look to see is SQ stock could show a touch more strength, getting above Wednesday's high of 266.67. That's also roughly equal to a prior alternate handle buy point of 266.87.
Investors also could use 289.33, just above the Aug. 5 all-time high, as high handle entry. But trying to find early entries has been important over the past several months.
is a second stage base for Square stock. Such early stage patterns are more likely to succeed.
Shares surged 11% in the week ended Aug. 6, hitting a record 289.23 a couple days later. It surged after Square announced a $29 billion deal to pay AfterPay, an Australian-based "buy now, pay later" fintech. Square also reported blowout earnings, though revenue fell short.
The relative strength line has generally been making progress of late after a short pullback from mid-April until late May. Investors will want to see the stock follow through on this promise.
The stock currently holds a very impressive Composite Rating of 97, with earnings performance currently its strongest feature. It has managed to post a gain of more than 18% so far this year.
Institutional support has been solid of late, with the stock boasting an Accumulation/Distribution Rating of B. Its Sponsorship Rating of A is also impressive.
The recent IBD 50 Stocks To Watch pick posted a Q1 sales increase of 266% to $5.05 billion. Meanwhile, EPS jumped from a loss of 2 cents a share to a 41-cent profit per share. The firm is getting set to report its latest results on Aug. 5.
Square saw a significant revenue increase from its subscription and services-based products. For this segment, revenue was $558 million in the first quarter, up 88%. The company's popular Cash App delivered strong growth in the first quarter, generating $4.04 billion of revenue, an increase of 666%.
Square stock experienced major growth in 2020 as investors focused on the growth of its consumer Cash App. But the digital payment processor warned that the app expects slower growth as government stimulus payments to consumers wind down.
For Q1, Square disclosed a new $170 million investment in Bitcoin on top of its $50 million purchase in October. Square reports Bitcoin holdings as unrealized gains on investments, excluded from adjusted earnings.
In a tweet on July 15, Square CEO Dorsey said the company will create a new business line to help developers build financial services products focused on Bitcoin. Square is "building an open developer platform with the sole goal of making it easy to create noncustodial, permissionless, and decentralized financial services," Dorsey tweeted.
Square is a member of the IBD Sector Leaders, IBD's most stringent and powerful screen.
Mercado Libre Stock
Mercado Libre stock is eying a new entry after forming a cup with handle base. The ideal buy point here is 1,899.43. The stock closed down 3.5% for the week, building the handle, but inched higher on Friday.
The relative strength line has been taking a breather in recent sessions following a spike, but this has allowed its handle to form.
With earnings returning after two quarters of losses, stock market performance has been a strength. In the last four weeks alone MELI stock has gained almost 14%.
The stock's case is bolstered by its most recent earnings report. Adjusted earnings jumped 23% to $1.37 per share, crushing views for 11 cents. Revenue doubled to $1.7 billion.
Based in Buenos Aires, Argentina, Mercado Libre is the largest provider of e-commerce services in Latin America, and has a big leg up on industry behemoth Amazon.com (AMZN), at least in its own backyard.
As of April, Mercado Libre received nearly 668 million monthly visits within Latin America, according to researcher Statista. Amazon was a distant second for that region, with 169 million.
Mercado Libre provides an e-commerce marketplace for buyers and sellers. Moreover, it hosts platforms where users can create online stores. It also provides financial services technology.
E-commerce sales jumped 96% to $1.14 billion in the second quarter. Revenue from financial technology services grew 89% to $560.4 million. It processed $7 billion in gross merchandise volume, up 46%. Active users climbed 47% to 75.9 million.
The recent IBD Stock Of The Day gets about 93% of revenue from Argentina, Brazil and Mexico. The remaining 7% comes from Colombia, Costa Rica, Chile, Venezuela and Ecuador, among other countries. In total, Mercado Libre operates in 18 countries.
"We believe that our business is showing tremendous momentum despite immense volatility in our key markets due to the frequent closing of physical retail across Latin America," Chief Financial Officer Pedro Arnt said during a conference call with analysts after the earnings report. "Additionally, three of our top markets — Brazil, Argentina, and Mexico — were listed among the top five growth markets globally."
Mercado Libre's financial business, called Mercado Pago, allows customers to make contactless payments, pay utility bills, make peer-to-peer transactions and pay for transportation tickets. Mercado Pago faces competition in digital payments from Brazil-based PagSeguro Digital (PAGS).
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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