Wednesday's IBD 50 Stocks To Watch pick, cybersecurity leader Cloudflare, is breaking out past its latest buy point. NET stock rallied more than 4% midday Wednesday and is one of the best stocks to buy and watch in today's stock market.
Started in 2009, San Francisco-based Cloudflare speeds up and provides security for web applications routed through its global network.
On April 28, Cloudflare plunged 21% after the company reported first-quarter earnings that topped estimates while revenue roughly met expectations. But the company also gave a weak June-quarter and full-year 2023 revenue outlook. Shares have been on the rebound since early May.
Cloudflare said it earned 8 cents a share in Q1, up from 1-cent profit a year earlier. Revenue climbed 37% to $290.2 million.
"The quarter most reminded me of Q1 of 2020, when businesses were paralyzingly nervous about the impact of Covid-19. I think this parallel shows how, with uncertainty in the economy, companies are closely watching their own businesses before committing to new spending," cautioned CEO Matthew Prince in the earnings call.
Prince added, "Thankfully, we continue to be a must-have, not a nice to have. And most of the deals we expected to close did, just later than we expected."
NET Stock Boasts Strong IBD Ratings
With the company coming off its first profitable year, Cloudflare stock has a middling 81 out of 99 Earnings Per Share Rating, according to IBD Stock Checkup. This rating takes into account EPS growth and stability of earnings over the past three years, with the two most recent quarters weighed more heavily.
Cloudflare doesn't have a three-year EPS growth rate because the company lost money until it had a profit in 2022, according to IBD MarketSmith. But the company is on track for big profit growth in 2023. FactSet estimates are for Cloudflare to earn 34 cents a share, a 162% year-over-year increase. Annual earnings are forecast to grow an additional 21% in 2024.
NET stock boasts a perfect 99 IBD Composite Rating. The IBD Composite Rating is designed to help investors easily gauge the quality of a stock's fundamental and technical metrics.
Cybersecurity Leader One Of Best Stocks To Buy And Watch
The stock is trying to extend a three-week win streak by breaking out past a 66.30 buy point in a double bottom pattern. Shares briefly exceeded the entry Tuesday before closing below it. Now, Cloudflare shares are breaking out with more clarity, rallying 4.5% midday Wednesday.
The 5% buy range runs up to 69.62.
Keep an eye on the stock's relative strength line. While it is at a recent high, it is still a bit off its old 52-week high, which was set in August 2022. Remember, the RS line measures a stock's price performance vs. the S&P 500 and is the blue line plotted on every IBD chart.
Boasting strong earnings estimates and solid price action in recent weeks, NET stock is one of the best stocks to buy and watch in today's stock market.
With the stock market in a confirmed uptrend, investors should be on the lookout for top stocks breaking out. Despite Wednesday's midday losses, IBD's recommends exposure in stocks remains at 40% to 60% of your portfolio.
Best Stocks To Buy And Watch
Three recent IBD 50 Stocks To Watch picks, which are among the best stocks to buy and watch. Axcelis is extended, however.
| Company | Symbol | Buy point | Type of base |
|---|---|---|---|
| Confluent | 29.82 | Cup base | |
| Axcelis Technologies | 136.48 | Cup base | |
| Fortinet | 69.17 | Flat base |
Source: IBD Data As Of May 31
Follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on the best stocks to buy and watch and the stock market.
