EARNINGS: Social Stock Up After 150% Earnings Gain
The best stocks to buy offer a blend of strong fundamentals and leading price performance. And with the Nasdaq composite back above its 50-day moving average, more and more growth stocks are showing renewed strength.
The best stocks to buy and watch aren’t hard to find, as long as you’re fishing in the right pond. A top stock like Arista Networks (ANET) might not get a lot of attention, but it does have a lot of characteristics seen in past stock market winners before big price moves.
The best tech stocks to buy and watch now include ANET, Taiwan Semi (TSM), CrowdStrike (CRWD), ServiceNow (NOW) and Palantir (PLTR).
Despite sizeable year-to-date gains for the Nasdaq composite and S&P 500 in 2023, the year was challenging for many of the best stocks to buy and watch, in part due to rising interest rates and an increasingly hawkish Federal Reserve.
But the interest rate and Federal Reserve narrative has changed dramatically with the Fed now set to start cutting rates this year. As a result, a large number of stocks to buy and watch in the technology sector are acting better with the stock market back in a confirmed uptrend. The market has dialed back rate-cut expectations, but Wall Street is still feeling comfortable about a soft landing for the economy.
It was a sensational year for Magnificent Seven stocks like Nvidia (NVDA) and Meta Platforms (META), which closed out the year with gains of 239% and 195%, respectively.
But in a year that saw the S&P 500 rise 24%, the S&P 500 Equal Weight ETF only mustered a gain of 12%.
Interest rates have been on the rise, but the 10-year Treasury yield fell hard last week after a weaker-than-expected April jobs report.
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.
At one point, fears of a recession and concerns about contagion in the financial sector after the collapse of SVB Financial and Signature Bank made it an extremely challenging environment for many of the best stocks to buy and watch.
But fresh follow-through day for the Nasdaq composite and S&P 500 in early November gave a buy signal and market breadth started to broaden out almost immediately. The Nasdaq jumped 1.6% in higher volume on Nov. 1, confirming a new uptrend. The S&P 500 followed suit on Nov. 2 with a 1.9% rise in higher volume.
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.
Join IBD experts as they analyze leading stocks in the stock market rally on IBD Live
Screening for the best stocks to buy and watch is as easy as looking at the MarketSurge 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.
Arista Networks was poised to gap up Wednesday after reporting strong earnings. Earnings and revenue came in better than expected and guidance was slightly ahead of views. The company also set a $1.2 billion share buyback. Arista sells network switches that speed up communications in data centers.
ANET continues to be a strong performer in the stock market and is one of the best stocks to buy and watch in the networking space. After topping a 292.66 buy point on March 21, sellers quickly knocked ANET stock lower. But it’s been in recovery mode along with the Nasdaq in recent days.
Shares were volatile on Feb. 12 despite another strong earnings report. Adjusted profit of $2.08 a share was well ahead of the Zacks consensus for $1.71 a share. Revenue increased 21% to $1.54 billion, a whisker ahead of the $1.53 billion consensus.
Arista Networks, which counts Meta Platforms (META) and Microsoft (MSFT) as large customers, shows bullish earnings and revenue growth in recent quarters, fueled by strong demand for its cloud networking software and hardware for the fast-growing data center market.
Over the past eight quarters, revenue growth has ranged from 15% to 57%.
Full-year earnings are expected to rise 12% this year and 10% in 2025.
Composite Rating: 93 (on 1-99 scale with 99 tops)
Latest-quarter EPS % change: +39%
Latest-quarter sales % change: +16%
Five-year EPS growth rate: 29%
Annual return on equity: 36%
Up/down volume ratio: 0.7
CrowdStrike fell hard with other security stocks on Feb. 21, weighed down by a weak earnings report from industry bellwether Palo Alto Networks (PANW). But it didn’t take long for CrowdStrike to find support at the 10-week line
One of the best stocks to buy and watch in the security software group, CrowdStrike on March 5 reported its third straight quarter of triple-digit earnings growth. Revenue increased 33% to $845.3 million. The company also raised its fiscal 2025 earnings and revenue guidance.
CrowdStrike gapped up on Nov. 29 after the company reported its second straight quarter of triple-digit earnings growth.
Adjusted profit surged 105% to 82 cents a share. Revenue growth was also impressive, up 35% to $786 million, helped by continued strong performance of its AI-powered Falcon platform. Annual recurring revenue (ARR) increased 35% to $3.15 billion
“CrowdStrike’s record third quarter exceeded expectations, delivering new milestones across the business: net new ARR growth accelerated to a record $223 million and ending ARR surpassed $3 billion, making CrowdStrike the fastest and only pure play cybersecurity software vendor in history to achieve this milestone,” said George Kurtz, CrowdStrike’s president, chief executive officer and co-founder.
For its current year fiscal 2025, annual earnings are expected to surge 27%, with growth slowing a bit in fiscal 2026, up 24%.
CRWD recently pulled back 23% of its high. It’s trying to reclaim its 50-day moving average. Watch for a new base to form from here.
Composite Rating: 97
Latest-quarter EPS % change: +102%
Latest-quarter sales % change: +33%
Five-year annualized EPS growth rate: 148%
Annual return on equity: 40%
Up/down volume ratio : 1.1
Palantir stock fell sharply Tuesday despite reporting another quarter of strong bottom-line and top-line growth. Adjusted profit jumped 60% to 8 cents a share. Revenue growth accelerated from Q4, rising 21% to $634.3 million. The company does a lot of defense and intelligence work with the U.S. government.
Government revenue rose 16% to $335 million, about $15 million above consensus. Commercial revenue increased increased 27% to $299 million, about $7 million above consensus. In the U.S. commercial growth increased 40%, but that was a sharp slowdown from 70% growth logged in Q4.
“We anticipate that our U.S. commercial business, which accounted for 24% of our revenue last quarter, will remain one of the most significant drivers of our growth in the near term,” CEO Alex Karp said in a letter to shareholders.
“Warfare in this century will continue to be transformed by software,” Karp added. “The platforms in use by our defense and intelligence partners present a very real threat to the survival of our enemies.”
Palantir stock jumped April 4 on news of a new AI and cloud partnership with Oracle (ORCL). Before that, Palantir, known for its data analytics software, gapped up sharply after reporting strong earnings and giving bullish guidance on Feb 5.
Composite Rating: 97
Latest-quarter EPS % change: +60%
Latest-quarter sales % change: +21%
Five-year annualized EPS growth rate: 19%
Annual return on equity: 19%
Up/down volume ratio: 1.0
ServiceNow, one of the best stocks to buy and watch in the enterprise software group, is consolidating recent gains after a strong gain since early November.
After four straight quarters of accelerating revenue growth. Q1 revenue slowed slightly but still increased 24% to just over $2.6 billion. Adjusted profit rose 44% to $3.41 a share.
Subscription revenue rose 25% to $2.52 billion.
“ServiceNow is off to a fast start with an outstanding first quarter,” said ServiceNow Chairman and CEO Bill McDermott. “As leaders seek significant productivity improvements, ServiceNow has first mover advantage with years of investment in AI technology and talent. Our GenAI offerings are the fastest selling in the company’s history.”
In the first half of 2023, Now announced a partnership with Nvidia (NVDA) to develop enterprise-grade generative AI capabilities to speed up business processes with more intelligent workflow automation.
More recently, Service Now announced a five-year collaboration with Amazon Web Services (AWS) to offer the ServiceNow platform in the AWS Marketplace. Amazon (AMZN) and NOW will also co-develop and launch AI-powered applications.
Composite Rating: 95
Latest-quarter EPS % change: +44%
Latest-quarter sales % change: +24%
Five-year EPS growth rate: 32%
Annual return on equity: 35%
Up/down volume ratio: 1.2
TSMC is the world’s largest chip foundry with high-profile customers like Apple (AAPL), Nvidia (NVDA), Advanced Micro Devices (AMD) and Broadcom (AVGO).
When the company reported earnings in April, it returned to bottom-line and top-line growth after four straight quarters of declines.
But for the current quarter ended in June, TSMC guided revenue of $19.6 billion to $20.4 billion. The midpoint of the guidance, $20 billion, was above the $19.44 billion consensus.
Currently, TSMC is forming a double-bottom base with a 148.43 buy point. There was a good shakeout in the base when TSMC took out its prior low of 133.03.
Composite Rating: 92
Latest-quarter EPS % change: +11%
Latest-quarter sales % change: +4%
Five-year annualized EPS growth rate: 28%
Annual return on equity: 26%
Up/down volume ratio: 0.9
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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3:19 AM ET As AI gaint Nvidia etches a new buy point, TSMC returns to growth mode, pushing the stock toward a breakout…
3:19 AM ET As AI gaint Nvidia etches a new buy point, TSMC…
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Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.
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