With the Nasdaq composite at one point in June sinking almost 35% below a 16,212 peak set last November, some investors may think now is a time to buy. But among thousands of stocks, where should they start? This story showcases five Nasdaq stocks to buy or at least consider watching right now.
And the end of this article highlights an additional five to monitor closely.
The IBD approach emphasizes several simple yet historically proven and powerful factors that lead to long-term success. And 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 Nasdaq-listed 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 Nasdaq stocks that outperform the rest of the pack. If you confine your search to those stocks whose price performance proves superior to at least 80% or 90% of the entire market or more on a rolling 12-month basis, then you're really focused on stocks that have the potential to break out to new highs and make major price runs.
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 that regard. Monitor the quantity and quality of institutional ownership; this helps you assess the I in CAN SLIM.
The CAN SLIM Investment Paradigm: 7 Keys To Excellent Results In Growth Stocks
Nasdaq Stocks To Buy: Screening For Winners
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.
Stocks with an Accumulation/Distribution Rating of lower than B 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 a 95 Composite Rating, which combines all of IBD's key ratings with recent price action.
5 Nasdaq Stocks To Buy And Watch Now
As of Tuesday's close, 40 Nasdaq-listed stocks make the cut of this strict screen. Rising, yet still a touch down from 42 on Aug. 15.
Meanwhile, a key change recently occurred in IBD's current stock market outlook. Plus, if the market continues to rebound, this screen should see even more stocks jump on this high-growth bandwagon. For now, we highlight some notable fundamental, technical and mutual fund ownership elements for each stock as follows.
You can learn more about why the CAN SLIM investing method thoroughly covers fundamentals, relative strength and fund ownership quality by going to Free IBD University.
Stock No. 1: Financials Return
Smaller banks have been rebounding off their year-to-date lows. Some are rallying to 52-week highs, including MainStreet Bancshares. Part of the strength in the Russell 2000 lately may be attributed to nice gains in small and medium-sized banks.
The company's market value of $206 million obviously makes it a small cap. But its ratings are impressive; they include a 98 Composite Rating, a 91 for Relative Strength, and a 92 EPS Rating.
Shares have soared in recent weeks. On Friday, action was especially wild. Keep in mind that MNSB's liquidity is ultra thin, which leads to big price swings.
In fact, MainStreet Bancshares trades merely 17,000 shares on average per day.
Nonetheless, MainStreet is so far having success in clearing long-term upside resistance at the 25-26 price level. Since May, one could call the chart action as fitting an amorphous consolidation pattern. From this view, MNSB is climbing past a 26.95 buy point with a 5% buy zone that goes up to 28.30.
On Oct. 17, the Fairfax, Va., lender reported a 73% rise in third-quarter earnings to 97 cents a share. Revenue lifted 35% to $23.3 million, the highest in any quarter in at least two years. Those sharp numbers mark a turnaround from lousy results in the year-ago quarter. Back in Q3 of 2021, MainStreet's earnings fell 35% on 6% shrinkage in the top line.
MainStreet's earnings outlooks solid. Analysts surveyed by FactSet see the bottom line rising 17% this year to $3.10 a share and up another 15% to $3.56 in 2023. The stock pays dividends, giving MNSB an annualized yield of 0.9%.
Nasdaq Leader No. 2
Interactive Brokers has emerged as a leader in recent months. The stock has sprinted past a 70.86 buy point in a large cup with handle.
The 5% buy zone from this entry goes up to 74.40. So from this vantage point, IBKR is extended from the buy range.
However, the stock hasn't quite yet rallied to new highs. Thus, watch for another potential handle to form within the current base.
Read more about why a handle on bases helps flush out the remaining weak holders and clears the decks for a potential stunning breakout and immediate gains.
The Greenwich, Conn., firm is a global force in market making and online brokerage services. Interactive grew Q3 profit 38% vs. a year earlier to $1.08 a share on a 114% leap in revenue to $1.1 billion.
Full-year estimates also look strong. Analysts see earnings finishing 2022 up 16% to $3.94 a share, then accelerating 34% to $5.26 in 2023.
Nasdaq Stocks To Watch No. 3: Telecom Leader
Back in April to June, Clearfield carved a cup with handle of its own.
An IBD-style buy point of 69.34 emerged within its 3-month cup with handle. And in the week ended July 15, shares vaulted past this entry, staging a breakout. Volume jumped vs. the prior week, and ended above the stock's average trading over the past 10 weeks.
The stock broke out powerfully in July, setting off a fantastic two-month run that sent CLFD to as high as 130.01.
Since August, Clearfield is now in correction mode. And it remains volatile as ever.
According to MarketSmith, CLFD at one point held an extremely high beta of as high as 2.14. It's dropped to 1.87.
A beta of 2 means a stock is two times, or 100%, more volatile as the S&P 500 on a daily basis.
CLFD has gotten well extended, meaning it no longer trades within the 5% buy zone.
However, shares are now rallying again after rebounding back above the 10-week moving average. After a great breakout, the first and second pullbacks to the 10-week line may offer an opportune time to add shares to a winning core position or to start a new position.
Plus, a new base is forming again. This time, a cup pattern offers a 130.11 entry point for now. To get the proper buy point in this pattern, simply add 10 cents to the cup's left-side peak.
Ratings Of 99, 99, 99
Due to the solid weekly action, Clearfield's ratings jumped to a 99 Composite, 99 EPS and 99 RS. The relative strength line made new highs, a strong sign of outperformance. The Accumulation/Distribution Rating is bullish again at A- on a scale of A to E.
Great breakouts occur in heavy volume, especially on the actual breakout day itself. But they also tend to succeed when the prior price action is tight and controlled. This indicates few willing sellers are hanging around the stock.
Just look at Clearfield's tight weekly action seen in the last week of June 2020 and the first three weeks of July before CLFD leapt 24% in massive turnover during the week ended July 24.
That's a massive breakout.
The maker of fiber optic telecom equipment and components is rare in its sector. Fundamentals are very strong.
Earnings per share have catapulted 120%, 57%, 475%, 440%, 100%, 141%, 226%, 144% and 109% vs. year-ago levels in the past eight quarters. Analysts surveyed by FactSet see the bottom line soaring 86% in fiscal 2022, ending in September, to $2.74 a share.
Sales have lifted 19%, 14%, 40%, 45%, 49%, 66%, 89%, 80% and 84% in the past eight quarters. Shares surged more than 16% on July 29 after the company posted a 109% boost in earnings to 92 cents a share on an 84% sales increase to $71.3 million. And CLFD has kept going higher.
Perhaps the biggest risk in CLFD: It's already made a monster run since it cleared a first-stage base at 14.63 in the summer of 2020. The week ended July 24 that year? A game changer. Shares pole-vaulted 24% to new 52-week highs in the heaviest volume since November 2015.
How To Select, Buy And Sell Stocks For Long-Term Profits Consistently: Read This Column
Two More Nasdaq Stocks To Buy And Watch
International Money Express inhabited this screen earlier this year. The stock exited after shares sank below the 10-week moving average in late August. But the stock has strengthened.
Now, the Miami-based money remittance and money order firm is showing amazing action amid a tough stock market. On Monday, shares drove 4% higher and cleared a new buy point of 26.33 within a nine-week base.
Shares jumped 4% for the week and remain in buy range.
International Money's earnings per share has grown 35%, 39%, 25%, 33%, 26% and 21% vs. year-ago levels in the past six quarters. Sales rose 17% to 37% over the same time frame. No wonder the stock earns a top-notch A for the SMR Rating.
Steel Dynamics has made more progress after sailing past an 88.72 correct buy point on strong Q3 results. The new seven-week pattern formed next to a longer base that had the elements of a cup with handle. If the current market uptrend holds, more cup bases should form among top Nasdaq stocks to buy and watch.
The 5% buy zone from 88.72 goes up to 93.16. Ideally, investors should buy at a price that's not higher than 93.16. Even great breakout stocks can pull back near or to the pivot point, shaking out uncommitted investors. Steel Dynamics gets a 94 for both the Composite Rating and the Earnings Per Share Rating, and a 96 Relative Strength Rating.
Weeks ago, the stock's relative strength line triggered a bullish signal, the MarketSmith RS line blue dot.
Use The IBD Stock Screener To Find More Top Stocks To Watch
5 More Nasdaq Stocks Worth Considering
Also making the screen recently and showing interesting action among Nasdaq stocks to buy and monitor? They include O'Reilly Automotive, Leaderboard Watchlist name Enphase Energy, Medpace, Super Micro Computer and Preferred Bank of Los Angeles.
O'Reilly has gotten extended after rolling past a new entry at 750.98. Medpace is threatening to surge past the top of a gigantic cup without handle and its 231.10 correct buy point.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
