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 select number of stocks to buy and watch in the technology sector are acting better, even with the stock market in a correction.
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After hitting a low of 3.3% in early May, the 10-year Treasury yield recently surged above the 4% level to a 16-year high as Wall Street weighs the prospects of another interest rate hike by the Federal Reserve before the end of the year.
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 buyers lifted the stock market off lows in August as hopes grew for a soft landing for the U.S. economy. A follow-through day on Aug. 29 didn’t have much of a chance when the Nasdaq suffered a stalling session two sessions later. Sellers came back into the stock market after that.
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 Arista Networks (ANET) and Nutanix (NTNX) 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 ANET stock, NTNX, CrowdStrike, Adobe (ADBE) and Synopsys (SNPS).
The Nasdaq composite and S&P 500 flashed follow-through days on March 29, putting the stock market in a confirmed uptrend. But distribution days started to crop up in the Nasdaq and S&P 500, resulting in a strong headwind for stocks. IBD put the market trend in correction after the Aug. 17 market close. A follow-through on Aug. 29 was immediately met by distribution. The uptrend went under pressure on Sept. 7. Soon after that, on Sept. 20, IBD put the market status in correction again.
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: CrowdStrike
One of the best stocks to buy in the security software group, CrowdStrike gapped up on Aug. 31 after the company reported its second straight quarter of accelerating earnings growth.
Adjusted profit surged 106% to 74 cents a share. Revenue growth was also impressive, up 37% to $731.6 million, helped by continued strong performance of its AI-powered Falcon platform.
Subscription revenue increased 36% to $690 million. CRWD also lifted its earnings and revenue guidance for its current fiscal year 2024.
For fiscal 2024, annual earnings are expected to surge 84%, with growth slowing a bit in fiscal 2025, up 24%.
CRWD continues to hold support at its 10-week line, a rarity in the technology sector these days, while trading near a 166.99 alternate entry.
Composite Rating: 99 (on 1-99 scale with 99 tops)
Latest-quarter EPS % change: +106%
Latest-quarter sales % change: +37%
Five-year annualized EPS growth rate: 164%
Annual return on equity: 30%
Up/down volume ratio: 1.5
Arista Networks
The provider of cloud networking software for data centers looked dead in the water when ANET stock gapped below its 50-day line on July 28. But a bullish earnings report on July 31 brought buyers back into the stock in spades. ANET has held gains and is one of the best stocks to buy as it as it trades just past the 5% buy zone from a 178.36. Trading has tightened up as the stock holds support at the 10-week moving average.
Arista Networks 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 24% to 57%.
Full-year earnings are expected to rise 35% this year and 10% in 2024.
Composite Rating: 98
Latest-quarter EPS % change: +46%
Latest-quarter sales % change: +39%
Five-year EPS growth rate: 21%
Annual return on equity: 33%
Up/down volume ratio: 1.7
Nutanix
The company operates an enterprise cloud platform that combines server, virtualization and storage applications into one solution.
Like CrowdStrike, Nutanix also gapped up in late August after the company reversed a year-ago loss with adjusted profit of 24 cents a share. Revenue growth accelerated from the prior quarter, rising 28% to $494.2 million.
“Our fiscal year 2023 results demonstrated a good balance of growth and profitability and further strengthened our balance sheet,” said Rukmini Sivaraman, CFO of Nutanix. “In conjunction with our earnings release, we’re pleased to announce that our Board of Directors has authorized the repurchase of up to $350 million of our stock, which we see as a reflection of confidence in the company’s long-term market opportunity and financial outlook.”
During the quarter, Nutanix and Cisco Systems (CSCO) announced a partnership to accelerate hybrid multicloud adoption.
Nutanix cleared a long consolidation during the week ended Sept. 1. It’s held gains well since then and is still in the 5% buy zone from a 33.73 entry.
Composite Rating: 92
Latest-quarter EPS % change: 24 cents vs. loss of 17 cents
Latest-quarter sales % change: +28%
Five-year annualized EPS growth rate: n/a
Annual return on equity: n/a
Up/down volume ratio: 1.3
Adobe
The leader in design, imaging and publishing software recently lost support at its 10-week moving average, but it’s less than 10% off its high while holding support near the 500 level.
The company on Sept. 15 reported another quarter of accelerating earnings growth, with adjusted profit up 20% to $4.09 a share. Revenue increased 10% to nearly $4.9 billion.
Revenue at the company’s Digital Media segment increased 11% to $3.59 billion; Creative revenue rose 11% to $2.91 billion and Document Cloud revenue gained 13% to $685 million.
“We are unleashing a new era of AI-enhanced creativity around the world with innovations across our product portfolio, including the recent launches of Firefly, Express, Creative Cloud and GenStudio” said Shantanu Narayen, Adobe CEO.
Several heavy-volume declines in recent days have knocked Adobe’s Accumulation/Distribution Rating down to a neutral C-.
A move above the 10-week line would strengthen ADBE’s technical picture as it works on a base. For now, it’s a potential resistance level to watch.
Composite Rating: 98
Latest-quarter EPS % change: +20%
Latest-quarter sales % change: +10%
Five-year annualized EPS growth rate: 20%
Annual return on equity: 45%
Up/down volume ratio: 0.8
Synopsys
The provider of electronic design software for the semiconductor industry is holding near highs as it tries to break out past a 471.15 entry. But that could be a tough task with the stock market in a correction.
It’s one of best stocks to buy in the design software group, helped by one of the most consistent track record of earnings growth around. Annual earnings have increased every year since at least 2016.
SNPS soared above its 50-day moving average on Aug. 17 as investors cheered the company’s second straight quarter of accelerating revenue growth.
Revenue increased 19% to $1.49 billion. Adjusted profit jumped 37% to $2.88 a share.
Annual earnings estimate are strong, with fiscal 2023 profit expected to rise 26%, with 23% growth forecast for fiscal 2024.
Composite Rating: 98
Latest-quarter EPS % change: +37%
Latest-quarter sales % change: +19%
Five-year EPS growth rate: 24%
Annual return on equity: 26%
Up/down volume ratio: 1.1
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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