Dollar Tree and Northrop Grumman count among this week's top stocks to watch, as they set up in bases near key levels in a challenging market.
Norwegian state-owned oil giant Equinor also makes the cut, along with funeral service firm Service Corp. and utility titan Exelon. The top five stocks share strong traits.
Each has a rising relative strength line at or near its highest level in more than three years, a bullish sign. And three of these stocks have an IBD Composite Rating of 90 or better out of a best-possible 99.
IBD Live: A New Tool For Daily Stock Market Analysis
Dollar Tree stock and its peers are all near buy points. Breakouts have struggled recently. But all of these top stocks to watch are trading close to their 50-day moving averages, so they won't look extended in the case of a breakout.
DLTR stock and Equinor are now just below their 50-day lines in cup-with-handle bases. Exelon stock has fallen further below that key level, nearing the lows of its shallow consolidation. Service Corp. stock is trying to hold its 50-day line in a flat base. NOC stock tested its 50-day line Friday after pulling back below a breakout.
Investors should be careful about making new purchases in a wobbly stock market. As the stocks discussed here show, strong relative strength isn't a guarantee the share price will rise.
But it's a good time to build watchlists of stocks that could lead the sustained uptrend.
Stock Market Action: Watch The RS Line
On a weekly MarketSmith chart, the RS lines for Northrop Grumman and EQNR stock are hitting bullish new highs, indicated by a blue circle at the end of their RS lines. The RS lines for Dollar Tree, Service Corp. and Exelon are just below May highs.
A rising RS line shows a stock's outperformance vs. the S&P 500 index. It is the blue line in the charts shown.
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.
Winning Composite Ratings
The best growth stocks have a Composite score of 90 or better, out of 99. The IBD Composite Rating combines key fundamental and technical metrics in a single easy-to-use score.
Most of the stocks to watch this week meet that bar. Equinor stock leads with a Composite score of 97. It's followed by Exelon with a 93 and Dollar Tree with a 90. Service Corp. earns a still-strong 89 and Northrop Grumman an 87.
Dollar Tree Stock An Inflation Play
Shares of Dollar Tree fell 2.4% to 156 for the week, undercutting support at the 50-day average. DLTR stock sits 6% below a 166.45 buy point from a deep cup-with-handle base.
The rising RS line for DLTR stock is poised to take out May highs. It has surged in 2022 and is not far from June 2016 long-term highs, according to MarketSmith chart analysis.
On May 18, Dollar Tree stock tanked 14% after Target warned of a bigger than expected margin hit from rising fuel and transportation costs. But just six days later, DLTR stock surged 22% on strong Dollar Tree earnings.
Discount retailer and peer Dollar General hiked its outlook for the year after beating quarterly earnings estimates. Shoppers, squeezed by price inflation, are seeking cheaper goods and merchandise.
Dollar Tree stock boasts an IBD Relative Strength Rating of 96 out of 99. That means it has outperformed 96% of all stocks in IBD's database over the past 12 months.
The discounter also earns a strong EPS Rating of 83 out of 99.
In late May, Dollar Tree posted a 48% EPS jump on a 7% revenue gain, the highest in five quarters. Wall Street expects DLTR earnings to jump 37% in fiscal 2022 vs. a 3% gain the prior year.
Northrop Grumman Stock
The B-2 bomber maker fell 3% last week to 463.82, but found support from its 50-day average. On June 6, NOC stock topped a 477.36 buy point from a cup-with-handle base, which formed after shares peaked in March. But it has now fallen 3% below that entry.
The RS line for Northrop Grumman stock is just below early June highs, signaling outperformance vs. stocks at large. That strength indicator continues below long-term highs.
NOC stock has a 94 RS Rating and a 70 EPS score. Northrop earnings and sales fell in recent quarters and are expected to see some further weakness before a return to growth in the fourth quarter of 2022, according to FactSet.
IBD Leaderboard stock Northrop Grumman should benefit from higher defense spending by Western powers, after Russia's invasion of Ukraine in February.
The defense giant also is developing the U.S. Air Force's next-gen intercontinental ballistic missile system, called Sentinel.
Russia-Ukraine War Fuels Equinor Stock
U.S.-listed shares of Equinor lost 3.3% for the week to 35.89, dipping below the 50-day average on Friday. Equinor stock is still working on a 38.80 buy point from a cup-with-handle base, which goes back to mid-April after a strong rally in the first quarter of 2022.
The RS line for EQNR stock is just below late May highs. It also remains below all-time highs.
Equinor holds a 97 RS Rating and an 81 EPS score. Equinor earnings and sales have exploded in recent months as the Russia-Ukraine war stokes sharply higher gas and oil prices.
Amid the Ukraine invasion, Norway is playing an essential role in supporting energy security for Europe, according to Equinor CFO Ulrica Fearn.
Service Corp. Stock
Funeral services provider Service Corp. retreated 3.3% for the week to 68.66, closing just below its 50-day line. SCI stock trades 5% below a 72.17 buy point from a flat base, backed by a sharply rising RS line.
Service Corp. stock bears a 93 RS Rating and 83 EPS Rating.
SCI earnings jumped 53% in 2020 and 57% in 2021, amid the deadly Covid-19 pandemic. Wall Street is braced for tougher quarters ahead.
Analysts polled by FactSet forecast that Service Corp. will deliver a 23% EPS decline this fiscal year on a 6% sales drop, as pandemic tailwinds ease.
Exelon Stock
Shares of Exelon retreated 5.6% for the week to 46.01, knifing through the 50-day line and nearly undercutting the lows of its shallow cup base. The base's handle is no longer valid because its midpoint is below the midpoint of the base. Investors could still use that "handle" entry of 49.96 or perhaps 49.33, just above Wednesday's high, as aggressive places to start a position. The official buy point is 50.81.
The RS line for EXC stock has pulled back from a 52-week high. It is far below long-term highs.
Utility giant Exelon has a 95 RS Rating and an 83 EPS Rating. Exelon earnings per share fell 9.4% in 2021 but are expected to rebound 8.8% in 2022, though still a few cents short of the 2020 level. Sales are seen plunging 47% in 2022 before recovering to a 3% gain the next year.
Exelon markets and distributes energy, after spinning off its energy generation assets earlier this year. The spun-off company is called Constellation Energy.
For more great stock ideas like Dollar Tree stock, check out IBD's proprietary watchlists, like the IBD 50 and the IBD Big Cap 20.
