Northrop Grumman and Eli Lilly lead this weekend's watch list of five stocks near buy points that are solid bets to withstand the coming Federal Reserve-induced economic slowdown. Like the defense contractor and drugmaker, Flex LNG, Howmet Aerospace and Ashland Global provide a combination of growth potential and some degree of shelter from economic risk.
Flex LNG has a modern fleet for transporting liquified natural gas, for which demand has grown more urgent since Russia's invasion of Ukraine. The Russian conflict also bodes well for Northrop, which analysts declared to be the biggest winner from President Joe Biden's $773-billion fiscal 2023 budget request for the Pentagon.
Howmet, a supplier of precision metal parts, stands to benefit from greater international demand for Lockheed Martin's F-35 military jet, as well as increased commercial aircraft orders as Covid recedes. As a big Boeing supplier, Howmet will get a lift as output increases for the 737 Max and 787 Dreamliner, which is awaiting FAA clearance.
Eli Lilly, which is on the flagship IBD 50 list and part of the IBD Leaderboard portfolio of elite stocks, has thrived this year as a defensive health care play with strong growth prospects.
For Ashland, a supplier of additives and special ingredients, the defensive life sciences sector is its biggest source of revenue. Meanwhile, Ashland's finances have been fortified by the $1.65-billion sale of its performance adhesives business, leading to greater focus, less debt and a bigger stock buyback.
Northrop Grumman stock also is part of the IBD Leaderboard, while HWM stock was recently added to IBD SwingTrader.
NOC Stock
On Northrop's April 28 first-quarter earnings call, CEO Kathy Warden said the budget request fully funds initial production of the B-21 Raider stealth bomber. Biden's defense budget plan also includes a "significant year-over-year increase in development funding" for a new intercontinental ballistic missile known as the Ground Based Strategic Deterrent.
The Air Force plans to spend $20 billion for B-21 production over five years. In 2020, Northrop received a $13.3-billion contract to develop the new ICBM.
While Northrop's revenue and EPS have trended lower in recent quarters, those and other programs are expected to fuel growth in 2023 and beyond.
On Friday, Northrop Grumman stock climbed 3.4% to 478.37, despite a lousy day for the stock market. The move, which came on a rebound off Northrop's 50-day moving average, carried NOC stock just past a 477.36 buy point from a cup-with-handle base.
While defense stocks surged in unison in the immediate aftermath of Russia's invasion, Northrop has outshined the rest of the group — and most of the stock market.
LLY Stock
On May 27, Eli Lilly stock surged past a 314.10 buy point, but the breakout didn't initially hold. Over the past four trading days, LLY stock lost ground each day, but has so far found support at its 50-day line.
Headlines surrounding Sen. Joe Manchin's eagerness to pass legislation this year to curb drug price inflation undercut the group. That possibility could produce some volatility in the next couple of months. Still, Eli Lilly stock could be actionable with a firm move above its 50-day line.
Analysts appear increasingly bullish on Eli Lilly's outlook, even if skeptics are right about its donanemab Alzheimer's drug. Last week, JPMorgan analyst Chris Schott hiked his target for LLY stock to 355 from 340, keeping an overweight rating. Schott, citing FDA approval of Mounjaro for type 2 diabetes treatment, among other drivers, said he sees a path for Eli Lilly EPS to reach $28 by 2030, up from $8.80 in 2022.
Clamor For Lithium Batteries Charges Up This Stock
FLNG Stock
Europe's urgent need for LNG to supplant Russian natural gas had short-term negative effects for Flex LNG. That's because the shorter trip to Europe vs. Asia had the effect of increasing shipping availability, bringing down spot market rates from lofty Q4 levels.
However, the push to increase LNG export capacity in the U.S. is bullish. Flex CEO Oystein Kalleklev said on the May 11 Q1 earnings call that the company's "state-of-the-art LNG carriers" reduce the carbon footprint by 60% relative to older steamships, using less fuel while carrying more cargo.
FLNG stock slipped 1% to 29.74 on Friday, after Thursday's big 7.75% surge past its 50-day line. Thursday's move, which broke a downtrend from FLNG stock's April 18 high, flashed an early entry point. The official buy point is 32.87, according to a MarketSmith analysis.
FLNG stock's relative strength line, the blue line in accompanying charts that tracks a stock's progress vs. the S&P 500, is hitting a new high, confirming its market leadership.
HWM Stock
Howmet Aerospace, Thursday's IBD Stock Of The Day, slipped 1% to 36.63 on Friday. That followed a strong 3.7% rise on Thursday, which came as Boeing stock also rallied on more talk of a possible Delta deal for the 737 MAX
Howmet is working on a 10-week double-bottom base with a 37.63 buy point. However, Thursday's move carried HWM stock past an early entry point of 36.13, 10 cents above last week's high.
Aggressive investors already could have established an entry point as HWM stock blew past its 50-day line while breaking a downtrend on May 27.
HWM stock's relative strength line is also hitting a multiyear high.
ASH Stock
Ashland, which was IBD Stock Of The Day on May 26, dipped 0.7% to 107.03 on Friday.
ASH stock appears to be working on a handle, which could be completed with one more day, offering a 108.95 buy point. The current buy point is 111.15. Ashland stock already has a handle on a weekly chart, which also shows its relative strength line at new highs.
Analysts became more widely bullish about Ashland after the company was able to fully offset higher materials, freight and energy costs with price increases in fiscal Q2. The company also boasts a strong pipeline of "planet-positive new product introductions" that it expects to help drive revenue growth.
