Wednesday's IBD 50 Stocks To Watch pick is artificial intelligence play Powell Industries, which is approaching an early buy trigger. But the AI stock dropped 1.6% midday Wednesday.
Houston-based Powell is a supplier of custom-engineered solutions for the management, control and distribution of electrical energy. The company is also a growing presence in the data center market.
On July 30, Powell reported strong fiscal third-quarter earnings and sales. Earnings surged 149% vs. year-ago period to $3.79 per share. Revenue jumped 50% in the latest quarter to $192.4 million, "driven by strength across nearly all of the market sectors" that the company serves, Chief Executive Brett Cope said in the company's earnings news release.
The data center business is still a relatively small part of sales. In the third quarter of the fiscal year, sales to the oil-and-gas and petrochemical industries accounted for 59% of revenue, up from 52% in 2023. Sales to electric utilities make up another 20% of revenue. The commercial and other industrial category, which includes data-center sales, accounted for 15% of revenue in the latest quarter.
Cope added: "Importantly, the most significant increase was driven by our electric utility sector, while we were also awarded a notable petrochemical order in the quarter."
Meanwhile, Powell is in an encouraging positions in the last quarter of fiscal 2024, said Chief Financial Officer Michael Metcalf.
"Commercial activity remains strong, providing a tailwind as we close out the year and prepare for fiscal 2025," Metcalf said.
Earnings are expected to surge 168% in the current fiscal year ending in September, according to IBD MarketSurge, with a mild 3% increase in the next fiscal year.
Be sure to read how to adjust to changing market conditions, with IBD's new exposure levels.
AI Stock Eyes Early Entry
After correcting as much as 39% from its 52-week high on May 28, Powell stock is rebounding sharply from its long-term 200-day moving average. Shares are back above their 50-day line and forming the right side of a cup base.
The official buy point is 209.14, but there is an early buy trigger for aggressive investors in play at 188.45, the high on July 31, according to MarketSurge chart analysis.
The stock's relative strength line is rebounding, but remains squarely off its old highs. That makes sense given the stock has been consolidating since late May. Now, investors should be looking for an ascending RS line during the stock's recovery. That would mean the stock is handily outperforming the S&P 500 as it bounces back.
With strong earnings growth in recent quarters and big price performance year to date, Powell stock shows a 93 out of a perfect 99 IBD Composite Rating, according to IBD Stock Checkup. The AI stock has rallied about 92% this year.
With market risk decreasing, investors should be looking to incrementally raise their market exposure. And the AI stock is among the best stocks to consider.
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Other Stocks To Keep An Eye On
Three recent IBD 50 Growth Stocks To Watch picks are among the best stocks to buy and watch.
| Company | Symbol | Buy point | Type of base |
|---|---|---|---|
| Deckers Outdoor | 1,106.89 | Cup base | |
| Netflix | 697.49 | Cup base | |
| Nvidia | 140.76 | Cup base |
Source: IBD Data as of Aug. 21
Follow Scott Lehtonen on X at @IBD_SLehtonen for more on the best stocks to buy and watch and the Dow Jones Industrial Average.
