Datadog, Dollar Tree, Brown & Brown, Public Storage and Cognizant Technology Solutions are five top stocks near buy points with relative strength lines at or near highs.
One way to find the best stocks during a choppy market is to look at their relative strength line which compares a stock's performance to that of the S&P 500. When the RS line is climbing, this means it is outperforming the benchmark index.
The RS line is a helpful tool for looking at top stocks that could break out soon or build new follow-on buy points. It can also work as a signal that a stock is reaching a top. All five of these stocks to watch have solid RS lines.
But don't get the RS line confused with the Relative Strength Rating, which shows how a stock's price performance over the last 52 weeks holds up against all the other stocks in IBD's database. The best-performing stocks often have an RS Rating above 80 in the early stages of their moves.
Another consideration for finding top stocks is the IBD Composite Rating. The Composite Rating compiles scores on five key fundamental and technical metrics: earnings growth, sales growth, profit margins, return on equity and relative price performance.
Keep in mind overall market conditions. The stock market is in a confirmed uptrend, but sold off hard on Thursday and Friday. Investors should be cautious about new buys.
DDOG Stock
Datadog is a monitoring system for cloud-based applications. The stock shot up 12% Thursday after the company reported strong fourth-quarter earnings, jumping to around short-term December highs.
DDOG stock now has a deep cup base with a 199.78 buy point.
Shares fell 4.1% to 167.40 in Friday's stock market trading. Is that the start of a handle, which could offer investors an earlier buying opportunity? Or is DDOG stock going to keep heading lower.
Datadog stock has a high price-to-earnings ratio of 324, which could be problematic amid a rising rate environment. As rates rise, investors discount future earnings more.
Datadog earnings surged 233% on an adjusted basis vs. a year earlier. Revenue jumped 84% to $326.2 million, amid an expanding partnership with Amazon Web Services. Datadog guided higher on Q1 and 2022 revenue.
Datadog has a 94 RS Rating and a 97 out of a best-possible 99 Composite Rating. It is the top-ranked stock in IBD's Computer Software-Enterprise group.
BRO Stock
Brown & Brown is an insurance broker and is ranked No. 24 on the IBD 50 list. It has a 95 RS Rating and a 94 Composite Rating.
BRO stock has a flat base with a 70.65 buy point. Its RS line has been steadily hitting new highs. It has an RS Rating of 95.
Shares fell 3.2% on Friday to 66.91, just below the 50-day line. That's after nearly hitting the buy point on Thursday.
PSA Stock
Public Storage shares dipped 1.3% last week 358.17, just below the 50-day and 10-week lines. PSA stock has a flat base with a 377.46 buy point. More experienced investors could use 370.90, just above its short-term high, as an early entry option.
Public Storage is a real estate investment trust or REIT, that owns and operates self-storage facilities in the U.S. and Europe.
Public Storage earnings and revenue growth rates have accelerated for the past three quarters.
The REIT has done well as interest rates rise. However, higher bond yields make its dividend yield less attractive to investors.
Public Storage stock has a 94 RS Rating and a 97 Composite Rating.
DLTR Stock
Shares rose nearly 3% last week to 137.43, reclaiming its 50-day line even after pulling back slightly on Thursday and Friday. DLTR stock is forming a double-bottom base with a 144.56 buy point. Its RS line hit a fresh high on Friday.
Discounters typically do well amid recessions and times of economic uncertainty. But Dollar Tree's earnings have been weaker-than-expected lately after a strong 2020. But analysts see earnings rising as a new fiscal year begins.
Also, inflation has hit the company's prices. In November, Dollar Tree announced plans to raise prices by 25 cents to a $1.25 maximum. Analysts warned that the price hike would do little to help investors in the near term as inflation hits margins.
DLTR stock has a 94 RS Rating and a 97 Composite Rating. It is ranked third in IBD's Retail-Discount & Variety group.
CTSH Stock
Cognizant Technology Solutions is an IT outsourcing and consulting company. It has an 83 Composite Rating and a 92 RS Rating. It is ranked No. 8 in IBD's Computer-Tech Services group.
CTSH stock is in a flat base with a 92.13 entry. Shares briefly broke out on Thursday, hitting 92.44 intraday before reversing lower that day and retreating Friday. Cognizant stock edged up 0.6% to 87.34 for the week.
Its RS line is at a new high.
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