2022 was a tough year for many of the best stocks to buy and watch in part due to rising interest rates and an increasingly hawkish Federal Reserve.But a handful of the best stocks to buy and watch in the technology sector are holding up well, as the stock market tries to bottom.
X Interest rates have been dropping, but they haven’t been dropping due to lower inflation expectations.Instead, they’ve been falling in anticipation of a sharp slowdown for the economy this year.The 10-year Treasury yield recently fell all the way down to 3.33% after hitting a high of 4.3% in October.
Fear of a recession and concerns about contagion in the financial sector after the collapse of SVB Financial ( SIVB ) and Signature Bank ( SBNY ) have made it an extremely challenging environment for many of the best stocks to buy and watch.But buyers have lifted the stock market off lows as hopes grow for a soft landing for the U.S.economy.
Stocks with high P-E ratios like Tesla ( TSLA ) and Nvidia ( NVDA ) were hit hard by institutional selling in 2022, along with security software stocks like CrowdStrike ( CRWD ) and Zscaler ( ZS ).
A rising interest rate environment isn’t good for the best stocks to buy in the tech sector with high multiples.Why? Because it makes for a more challenging operating environment.If the stock market senses any possibility of a slowdown in earnings growth from high P-E names, the selling will hit these stocks first.
Top Traits Of Best Stocks To Buy The best stocks to buy and watch aren’t hard to find, as long as you’re fishing in the right pond.
Top stocks like Dynatrace ( DT ) and MongoDB ( MDB ) don’t get a lot of attention, but both have characteristics seen in past stock market winners before big price moves.
The best stocks to buy and watch boast strong fundamentals along with leading price performance in their industry group.Many also show favorable fund ownership trends.
The best tech stocks also tend to show resilience in down markets.Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.
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Screening for the best stocks to buy and watch is as easy as looking at the MarketSmith Growth 250 , a daily screen of high-quality stocks.Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating , or stocks trading up in price with the heaviest volume.
The best stocks to buy and watch aren’t guaranteed to be huge stock market winners.But they do have qualities seen in past stock market winners before big price gains.
The best tech stocks to buy and watch now include Dynatrace, MongoDB, Inspire Medical Systems ( INSP ), Fortinet ( FTNT ) and Lam Research ( LRCX ).
The Nasdaq composite and S&P 500 flashed follow-through days on March 29, putting the stock market in a confirmed uptrend.Distribution days have started to crop up in the Nasdaq and S&P 500, but it’s not a market under heavy distribution.
When new institutional money starts to come in from the sidelines, the best stocks to buy and watch could easily resume their market leadership, helped in part by strong fundamentals.
Best Stocks To Buy: Fortinet Stock Fortinet soared above its 50-day moving average on May 5 after the security software leader reported another quarter of bottom-line and top-line growth.Earnings growth accelerated for the fourth straight quarter, jumping 79% to 34 cents a share.
“Revenue growth in Q1 was 32% due to strong growth in both product and service revenue.With 35% product revenue growth, we continue to gain market share while being a leading product revenue company in the cybersecurity industry.
Service revenue grew over 30% for the first time in a quarter in six years.We believe we have a significant opportunity to continue to grow service revenue by upselling value-added security services to our large installed base of customers,” said Ken Xie, Fortinet founder, chairman and CEO.
Fortinet boasts outstanding fund sponsorship.Fidelity Contrafund (FCNTX) has increased its position substantially in FTNT stock in recent quarters.At the end of Q3, Contrafund owned 700,000 shares.But that number swelled to 2.15 million at the end of Q1.
After a bullish move off lows, it’s best to wait for Fortinet to pause and digest gains.
A low-volume pullback could easily present a new entry.
Composite Rating : 99 (on 1-99 scale with 99 tops)
Latest-quarter EPS % change: +79%
Latest-quarter sales % change: +32%
Five-year annualized EPS growth rate: 35%
Annual return on equity: 385%
Up/down volume ratio : 1.3
Inspire Medical Systems Inspire is in major growth thanks to a new way to treat sleep apnea.The Inspire device is placed under the skin and delivers mild stimulation to the hypoglossal nerve, which controls the movement of your tongue and other airwave muscles.By stimulating these muscles, the airway remains open during sleep.
It’s a big step up from traditional CPAP devices that use bursts of air to keep the airway open.
When the company reported Q1 results on May 2, revenue growth accelerated for the fifth straight quarter, surging 84% to $127.9 million.The company activated 68 new centers in the U.S.in Q1, bringing the total to 973 centers that perform the minimally-invasive procedure.
“We are excited about our strong performance during the first quarter as the team remained focused on high-quality patient outcomes and delivered exceptional results,” said Tim Herbert, president and chief executive of Inspire Medical Systems.”Our growth was driven primarily by the increased utilization at existing sites and complemented by the addition of 68 new implanting centers and 17 additional U.S.sales territories.Based on the strong momentum we are seeing in our business, we are raising our full year 2023 revenue guidance to between $580 million to $590 million, an increase from our prior guidance of $560 million to $570 million.”
INSP stock cleared a cup-with-handle base on May 3.It quickly moved past the 5% buy zone from a 277.28 buy point.It’s best to wait for a mild pullback or tight trading near highs for a better entry.
Inspire was featured in a recent IBD 50 Stocks To Watch story.
Composite Rating : 95
Latest-quarter EPS: loss of 53 cents
Latest-quarter sales % change: 84%
Five-year EPS growth rate: n/a
Annual return on equity: n/a
Up/down volume ratio: 1.3
MongoDB Enterprise software stocks have been performing better, helped in part by recent strong earnings reports from Datadog ( DDOG ) and HubSpot ( HUBS ).
Database software firm MongoDB has been moving higher in good volume ahead of its upcoming earnings report.
The company hasn’t announced an official earnings date yet, but it should be on or around June 1.
MongoDB is a high-PE stock, but it’s been growing like gangbusters in recent quarters.Over the past eight quarters, revenue growth has ranged from 36% to 57%.
Annual earnings estimates are also strong.For its current fiscal year 2024, earnings are expected to jump 37% to $1.11 a share, with growth accelerating in fiscal 2025, up 52%.
For the current quarter, the Zacks consensus estimate is for adjusted profit of 9 cents a share, down 5% from the year-ago quarter.Revenue is expected to increase 21% to $346.3 million.
Shares popped nearly 7% on April 12, helped by bullish comments from Morgan Stanley, which raised MDB to overweight from equal weight with a 270 price target.
The stock has made good progress after clearing a 14-week consolidation, but it’s past the 5% buy zone.
MDB could retest its last buy area, which corresponds to the stock’s 10-day moving average, currently around 248.
Composite Rating : 98
Latest-quarter EPS % change: +375%
Latest-quarter sales % change: +36%
Five-year annualized EPS growth rate: n/a
Annual return on equity: 9%
Up/down volume ratio: 1.2
Dynatrace Dynatrace is also among the best stocks to buy and watch.
The company’s computer network monitoring tools measure and analyze the performance of business-critical applications.Dynatrace is in the “observability” field, which refers to monitoring internal computer networks, in addition to following application performance over cloud-computing infrastructure.
Earlier this year, the company upgraded its Grail unified intelligence platform with new automation and artificial intelligence features.In a recent note to clients, Wells Fargo analyst Andrew Nowinski wrote: “We continue to believe the new Grail platform is completely unmatched by the competition.Other platforms lack automation, which is a key reason customers choose Dynatrace.”
Shares were volatile Wednesday despite another strong earnings report.The company reported adjusted profit of 31 cents a share, up 82% from a year ago.Revenue increased 24% to $314.48 million.
Dynatrace also bumped up its revenue guidance for the current quarter and full year.
DT stock is sitting near the top of cup base with a conventional entry of 48.10.
Dynatrace was featured in IBD Stock Of The Day in early May.
Composite Rating : 99
Latest-quarter EPS % change: +82%
Latest-quarter sales % change: +24%
Five-year EPS growth rate: 81%
Annual return on equity: 16%
Up/down volume ratio: 1.7
Lam Research The numbers weren’t great when the chip-equipment giant reported quarterly results on April 19, but the results topped expectations.
Adjusted profit of $6.99 a share was down 6% from the year-ago quarter.Revenue decreased 5% to $3.87 billion..
