There’s no better time to build a strong watchlist of great companies than during a serious market correction. So, this story covers five NYSE stocks to watch and consider buying.
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They include small-cap enterprise software firm Model N (MODN), liquefied natural gas transport play Flex LNG (FLNG), heavy construction and engineering specialist KBR (KBR), and midcap growth stock Valmont Industries (VMI) in the electrical infrastructure space.
In 2022, the NYSE’s composite index continues to outperform its Nasdaq sibling. This may come as no surprise given that the latter made a much stronger move since the bottom of the coronavirus market crash in March 2020.
Since the November 2021 peak in the market, the NYSE composite has fallen as much as 20% from its 17,442 peak. Not pretty, for sure. Yet, that highlights a much milder drop than the 35% shellacking of the Nasdaq composite.
Put another way, at its June low of 10,565, the Nasdaq has to rally 53% just to meet its all-time peak of 16,212. But it would only take a 25% rebound by the NYSE composite to do the same.
At 14,956, the NYSE composite needs to rally more than 16% to breach that 17,442 high.
NYSE Stocks To Watch: Using A CAN SLIM Filter
The IBD approach emphasizes several simple yet powerful factors, based on decades of IBD market research, that lead to long-term success among NYSE stocks to watch. They go beyond simply investing in a healthy stock market environment.
If you want to achieve market-beating returns, first do this. Reserve your precious capital for just companies with truly strong fundamentals. This means aiming at companies with outstanding records of profit growth, return on equity, profit margins and sales increases. These factors make up both the C and the A in CAN SLIM, IBD’s seven-point investing paradigm.
Second, seek only those NYSE-listed firms that outperform the rest of the pack. If you confine your search to those stocks whose price performance proves superior to at least 85% or 90% of the entire market or more on a rolling 12-month basis, then you’re truly focusing on stocks that have the potential to break out to new highs and make major price runs.
A Key Third Layer Of Analysis
Third, get on the side of institutional investors that are actively accumulating shares over months and even years. Their long-term power on Wall Street can never be overstated. IBD’s Accumulation/Distribution Rating will help investors in NYSE stocks in that regard. Monitor the quantity and quality of institutional ownership; this helps you assess the I in CAN SLIM.
To select five NYSE stocks to watch, MarketSmith screener allows users to pick companies within IBD’s database that rate highly in terms of Earnings Per Share Rating, Relative Strength Rating and SMR letter grade, which stands for sales, profit margins and return on equity. A simple screen set up on MarketSmith demands that stocks show an 85 EPS score or higher, at least an 85 for RS, and an A grade (on a scale of A to E) for SMR.
Plus, stocks that did not have either an A or B for Accumulation/Distribution Rating didn’t make the cut. This rating analyzes price-and-volume action in a stock over the past 13 weeks. An A or B grade indicates fund managers are net buyers of the stock. A C grade points to a neutral amount of institutional buying vs. selling.
Finally, each stock had to hold at least a 90 Composite Rating, which combines all of IBD’s key ratings with recent price action.
A total 53 NYSE stocks made the cut on Friday morning, a sharp drop from 94 on Aug. 22. The figure still more than doubles the 23 stocks making the list on July 15.
In market cap, they range from as small as NL Industries (NL) (with a $443 million market value) to utility titan NextEra Energy (ELV) at $118 billion.
NYSE Stocks To Buy And Watch: No. 1
Richie Bros Auctioneers (RBA) has rallied nearly 4% over Thursday and Friday. Shares are approaching a 73.83 buy point in a large cup with handle.
To find the entry in this pattern, add 10 cents to the highest price within the handle, 72.73.
The auction site for heavy industrial equipment, such as trucks, made a bullish rebound off its rising 50-day moving average on July 14 in heavy turnover.
That action hinted at active buying by mutual funds, banks, pension plans and other large investors. The Accumulation/Distribution Rating of B+ asserts net institutional buying over the past 13 weeks.
Richie Bros’ average daily volume is ample at 487,000 shares per day; the stock trades more than $34 million in dollar volume each session.
RBA holds a 96 Composite Rating on a scale of 1 to 99; the Earnings Per Share Rating of 95 and Relative Strength Rating of 93 also sing.
Valmont replaces Valmont Industries (VMI), which has exited the screen but is still hanging tough. Shares have drifted back into the 5% buy zone after clearing a 264.60 buy point in a 14-week double bottom.
Stock No. 2: Enterprise Software Play
World Wrestling Entertainment has dropped out of the screen. Last week, Paycom Software (PAYC) made its debut. While PAYC has dropped out of the list, it still has waged a nice comeback since bottoming near 255 in June.
The Oklahoma City-based expert in human capital management and payroll processing software briefly hit the 400 price level before stepping back. The stock may be building a new handle on its first-stage cup pattern.
So for now, an aggressive entry stands at 402.88, a dime above the emerging handle’s intraday high.
Why “aggressive entry?” At 367, the stock still lies more than 34% below the cup’s peak of 558.
The RS Rating of 86 shows improvement. Three months ago, PAYC’s RS Rating stood at a lowly 26.
Wall Street holds rosy forecasts for Paycom’s future earnings growth. Analysts see the bottom line rising 28% this year to $5.75 a share and up another 24% in 2023.
Inside Investors.com: These Stocks Are Dividend And Utility Leaders With Stable Earnings
Stock Numero Tres
KBR (KBR), a midcap growth stock, is working on a new base and trying to lift off key moving averages, including the 10- and 40-week lines. The pattern shows the essential elements of a double bottom. The middle peak in between the two sell-offs, 52.15, plus a dime offered a 52.25 buy point.
KBR declined modestly after reporting Q2 results on Aug. 2. In the process, the stock etched a new handle on its shallow pattern. Add 10 cents to the handle’s high of 53.47, and you get a new buy point of 53.57.
This final shakeout of weak holders may set the stage for a future breakout to new highs.
The Relative Strength Rating of 88 has withered from a 93, yet is still respectable.
One concern: KBR is now treading below all of its key moving averages, including the 200-day line.
If this continues, the story will replace KBR soon.
A member of the heavy construction industry group, the Houston-based company has posted solid results over the past four quarters.
KBR’s bottom line expanded 31% to 76 cents a share — a solid result, given that a year earlier, Q2 profit rose a hefty 49%. Sales in the second quarter this year rose only 5%, marking a second quarter in a row of decelerating growth. In the prior four quarters, earnings per share lifted 49%, 45%, 35% and 29% vs. year-ago levels as revenue grew 11%, 34%, 70% and 17%.
No wonder, then, KBR gets a solid 93 EPS Rating. This means that the company’s long- and short-term earnings growth beats 92% of all companies in the IBD database. But the SMR Rating, analyzing sales, profit margins and return on equity, is good but not great at B on a scale of A to E.
Wall Street sees profits accelerating from 9% growth in 2022 to $2.61 a share to an even better 20% in 2023.
5 NYSE Stocks To Buy And Watch: Final 2
Flex LNG (FLNG): The ship-based transport firm (98 Composite Rating, up from 95, and 98 RS) specializes in liquefied natural gas. A plunge in gas futures in June boosted volatility in FLNG and its industry siblings. But natural gas plays have stabilized lately.
In addition, the stock’s uptrend is still intact. Due to recent gains, FLNG created a new nine-week cup-with-handle pattern that marks a new pivot point of 32.87, a dime above the handle’s highest price of 32.77.
FLNG has rallied 14% higher in the week ended Aug. 12, bursting past this new entry.
At its recent high of 36.99, shares shot well past the 5% buy zone. Investors should not buy shares extended past this 5% buy zone. But this past week, FLNG has retreated back into the proper buy range.
The cup has an unusual shape; the left side formed in less than two weeks. Yet a 30% correction from head to toe falls within the ideal range of declines. And Flex LNG held up at the long-term 200-day moving average, as seen on its daily chart; this implies institutional buyers stepped in to support the stock.
One issue on the fundamentals side? Lukewarm profit forecasts. Wall Street expects earnings to fall 3% this year to $2.94 a share, then lift only 9% to $3.21 in 2023. But keep in mind that last year, earnings catapulted 1,926% to a record $3.04 a share.
In contrast, the top line has soared in recent quarters, partly as a result of huge demand for LNG in Europe. In the fourth quarter of 2020, Flex LNG’s sales increased 30% to $67.4 million. Then, starting with Q1 of 2021, sales jumped 113%, 156%, 147% and 70%.
No wonder, then, that sales actually fell 8% in the first quarter of 2022. Flex LNG faced a difficult comparison after seeing the top line more than double in the same quarter a year earlier.
IBD Stock Checkup: FLNG
The small cap has a market value of $1.8 billion, 53.1 million shares outstanding and a float of 28.7 million. Flex LNG pays a stout dividend that carries an 8.7% annualized yield.
According to IBD Stock Checkup, FLNG ranks 7th among its peers in the oil and gas transport and pipeline industry group for Composite Rating, down from 5th earlier in August.
A New Software Stock To Watch
Model N is intriguing. Few enterprise software firms make the screen for now. Yet MODN is enjoying big gains this week after reporting stout results.
Earnings surged 44% to 23 cents a share in the June-ended quarter as sales edged up 10% to $56.2 million.
The Wednesday gap-up effectively breaks a long downtrend that starts with the high set in February 2021.
Please see the weekly chart to witness this potentially significant character change.
At this point, watch to see how MODN handles potential upside resistance at 34-35.
Tight trading over the next few weeks may complete the base-building process, giving birth to a new buy point. Shares remain 21% below a 52-week high and almost 35% below that 48.20 all-time peak.
Model N’s Composite Rating has jumped to a 94, a solid score. The RS Rating has risen to as high as 94 vs. 49 earlier in the month.
Bonus Stock
Also among NYSE stocks to watch, keep an eye on Hershey (HSY). The stock boasts a slightly improved 97 Composite Rating, a 92 EPS, and a 94 RS, up from 92.
A key defensive play amid the bear market, Hershey is no doubt leading most NYSE stocks. A breakout past a 155.59 entry in a long flat base in March 2021 ushered a solid advance of 49%.
Now, a new 13-week flat base has emerged, presenting a new buy point of 231.70. or 10 cents above the pattern’s left-side high. However, the current pattern could perhaps also be viewed as a shallow saucer with the makings of a handle, offering a lower entry at 222.75.
Find that buy point by adding 10 cents to the highest price within the handle, or 222.65. HSY has moved modestly past this entry point, and thus is actionable.
Analysts have boosted their profit estimates yet again. Now, they see earnings rising 14% this year to $8.21 a share, up from $8.05.
Mutual funds have been accumulating shares in the chocolate and sweets goliath of Hershey, Pa.
Total mutual funds owning shares have broken the 2,000 barrier, up from 1,827 at the end of the second quarter in 2021 to 2,053 at the end of March and as high as 2,279 at the end of June. That’s the kind of fund sponsorship trend you wish to see among NYSE stocks to watch.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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