Over the past few weeks, Microsoft (MSFT) and the other top stocks to watch pulled back to their 50-day lines amid a broad sell-off.
The five top stocks all belong to IBD’s Long-Term Leaders list. Buying these strong, steady winners near their 50-day lines is often a good idea.
The stocks generally have relative strength lines that look strong, near highs after prior uptrends. The RS line for West Pharmaceutical stock is a little less so. Investors should focus on stocks with high RS lines. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.
Stock Market Rally: Watch The RS Line
The relative strength line is a quick way to spot winners in any market — up or down.
The Relative Strength At New High stocks list is a great place to look for quality names with strong RS lines. IBD’s stock research platform MarketSmith has a screening tool that identifies stocks with RS lines making new highs.
In addition, the best growth stocks have an IBD Composite Rating of 90 or better, out of a best-possible 99.
All of the stocks to watch this week meet that bar. Fortinet stock leads with a CR of 99. Pool follows with a 98. West Pharmaceutical earns a CR of 97, Alphabet a 96, and Microsoft a 94. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
The software and cloud giant rose 3.4% to 334.69 last week, moving toward a 349.77 flat-base buy point, after reclaiming the 50-day/10-week line. Microsoft stock still needs to gather strength to get above some short-term resistance. But it could offer an early entry if it breaks this short trend line.
The RS line rallied nicely over the summer. It’s now just below the early December high.
In the past three quarters, Microsoft earnings growth ranged between 25% and 49%, meeting or exceeding the 25% or higher level a CAN SLIM investor would want to see. In all of fiscal 2022, Wall Street expects Microsoft earnings to rise 15%, and a further 16% in 2023, according to FactSet.
Shares of Alphabet rose 3.7% last week to 2,938.33, closing in on a new 3,019.43 flat-base entry, after retaking the 50-day/10-week line. It’s actionable now above 2,925.17 from the 50-day rebound. That marks a prior buy point and roughly where a downward-sloping trend line runs.
The RS line for online search leader Alphabet rallied for much of the past year, according to MarketSmith chart analysis. But it’s now below late-October highs.
Google stock owns an RS Rating of 92 and a near-perfect EPS Rating of 98.
Over the past three quarters, Google earnings growth ranged 71% to 169%. Analysts expect Google earnings to grow 85% in all of 2021, then to slow to a 5% gain in 2022, FactSet says.
Shares of the cybersecurity company are eyeing a 355.45 flat-base buy point after regaining the 50-day/10-week line. Fortinet stock already cleared an early entry last week. FTNT stock rose 4.55% to 349.02 last week, after eking out small gains in the prior two weeks.
The RS line for FTNT stock hit a new high Thursday.
Fortinet has a 98 RS Rating and a 91 EPS Rating. Over the past three quarters, Fortinet earnings growth ranged between 13% and 35%. Wall Street expects Fortinet earnings to increase 17% in 2021 and 18% in 2022.
Shares of the swimming pool supplies firm are working on a 582.36 flat-base buy point. POOL stock rose 1.7% to 549.65, reclaiming the 50-day/10-week line. Investors could probably take a POOL stock position now, though they might want to see a little more strength.
The RS line for Pool stock jumped in November and is just below record highs.
Pool bears a 94 RS Rating and a 97 EPS Rating. Over the past three quarters, Pool earnings growth slowed from 227% to 66% to 64%. But those are all strong numbers. In 2021, analysts expect Pool earnings to leap 77% before slowing to a 10% gain in 2022.
Pool, synonymous with swimming pools, also supplies irrigation and landscaping products. It has benefited from the pandemic surge in homeowners upgrading pools and outdoor amenities. The company has also shown cost discipline.
West Pharmaceutical Stock
The maker of delivery systems for injectable drugs on Thursday cleared a 458.09 buy point, from a cup-with-handle base that formed around the 50-day line.
The RS line for West Pharmaceutical stock is well below the consolidation peak. But it rallied strongly for most of 2021.
WST stock has a 93 RS Rating and a 98 EPS Rating.
Over the past three quarters, West Pharmaceutical earnings growth ranged between 79% and 103%. Wall Street sees WST earnings jumping 78% in 2021, then slowing to a 7% gain in 2022.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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