Google stock, Microsoft (MSFT), Vale (VALE), Polaris (PII) and PVH (PVH) are top stocks near buy points to watch this week.
Vale stock and Google parent Alphabet (GOOGL) earned spots last week on IBD Stock Of The Day. Microsoft stock is on IBD Leaderboard, a curated list of stocks with the most potential for big gains. Google stock is on the IBD 50 list of top growth stocks. Microsoft is also an IBD Long-Term Leader.
While Friday marked day one of a stock market rally attempt, the market is in a correction. Investors should be largely or entirely in cash and extremely cautious about buying any stocks. But it is a good time to build your stock watchlist, so you’ll be ready to act when the next confirmed stock market rally occurs.
The relative strength lines for Google, Vale, PVH and Polaris stock are at or near 52-week highs. A rising RS line means a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.
The RS line for MSFT stock is not too far from its recent late January levels, but has been lagging broadly since July.
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Stock Market Tool: The RS Line
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.
The RS line is not the same as the Relative Strength Rating, which has a score of 1 to a best-possible 99. The RS Rating tracks a stock’s performance vs. all stocks over the past 12 months, with some weight to the last three months.
In addition, the best growth stocks have an IBD Composite Rating of 90 or better.
Vale stock leads this group with a perfect Composite Rating of 99, followed by Google with a near-perfect 98, Polaris with an 86, Microsoft with an 83 and PVH with a 53. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
Alphabet rose 3.7% to 2,097.07 for the week, rebounding from its 21-day exponential moving average. Most of that gain came Friday.
The Google parent has a three-weeks-tight p attern with a buy point of 2,145.24, according to MarketSmith chart analysis. The entry is just above the mid-February all-time high. The RS line for GOOGL stock is at a record high.
Google stock should benefit from a rebound in digital advertising as coronavirus vaccinations expand. Stock buybacks are another bright spot. Cloud computing holds promise, but remains an unprofitable business for Alphabet for now.
The tech giant has an IBD Relative Strength Rating of 69. That means it has outperformed 69% of all stocks over the past 12 months. In recent years, Google stock has general kept pace with the S&P 500, rather than outperform.
The best growth stocks typically have RS Ratings of at least 80. But the RS line, which is more timely than the RS Rating, signals GOOGL stock’s recent outperformance.
Alphabet earns an EPS Rating of 93 out of a best-possible 99. Earnings per share growth averaged 10% over the past three years, below the 25% or higher you would want to see. And EPS growth averaged just 8% over the past three quarters.
Profit and revenue growth have rebounded in the last two quarters, to 29% and 23%, respectively, in Q4. Analysts expect Google earnings to rise 32% in 2021 and 17% in 2022.
An Accumulation/Distribution rating of B+ means funds and institutions have been heavy or moderate buyers of GOOGL shares over the past 13 weeks.
The tech and cloud giant dipped 0.3% to 231.60, but pared weekly losses on Friday to close back above its 50-day and 10-week. Microsoft stock is just below a 232.96 buy point after breaking out earlier, but the entry is still valid. Getting above that level is likely to break a downtrend and top the 21-day line.
Microsoft’s RS line has been trending lower, though shares have been outperforming speculative growth stocks in the past couple of weeks.
MSFT stock owns a superior EPS Rating of 95 but poor RS Rating of 50. Microsoft earnings per share growth averaged 24% over the past three quarters and 22% over the past three years — those are solid numbers for an established tech giant. EPS growth has accelerated for the past two quarters, with 34% in fiscal Q2. That quarter’s 17% revenue gain was the best in years.
Microsoft has benefited from work-from-home and learn-at-home trends during the Covid-19 pandemic. The trends have spurred an increase in PC buying. Also, Microsoft’s cloud software and services are aiding at-home workers and students.
Brazilian mining giant Vale jumped 9.6% to 17.74 on the week, rebounding in strong volume from the 10-week line. Vale stock is just below a 17.78 cup-with-handle buy point.
The RS line is nearing January’s two-year high and has already topped its handle high.
Mining stocks tend to be volatile, but they are currently rated 7th out of IBD’s 197 industry groups. They benefited recently from hopes of a boost to commodity prices as countries reopen, then sold off last week on inflation fears. Vale held up better than peers.
Vale stock sports a 73 EPS Rating and 80 RS Rating. Vale earnings accelerated in the latest quarter as sales surged 48%.
Shares popped 10% to 129.68 on the week. Polaris stock topped a 129.10 flat-base buy point on Friday in more than double normal volume. The flat base is part of a base-on-base formation, which is especially bullish in weak markets. Its RS line is at a 52-week high, making it a blue dot special on a weekly MarketSmith chart.
Polaris has an 87 EPS Rating and 70 RS Rating. Earnings per share growth at the maker of motorcycles and off-road vehicles averaged 42% over the past three quarters, well above the average 4% over the past three years. Earnings and sales growth have accelerate for the past two quarters, to 83% and 24%, respectively, Q4.
In January, Morgan Stanley analysts called Polaris stock the “ultimate adventure stock” poised to become a leader in EV powersports.
Polaris’ surge last week came as it announced a new, electric Ranger utility side-by-side vehicle. The EV launches in December and will hit the road in early 2022. Polaris and Zero Motorcycles partnered on the EV, as the former moves to electrify its vehicle lineup. The Ranger is Polaris’ No. 1 brand in its biggest vehicle segment.
Shares of the apparel company gained 4.4% to 104.42 on the week. PVH stock eyes a 108.94 cup-shape buy point. The RS line is improving.
PVH stock earns a 12 EPS Rating and 78 RS Rating. While PVH is going to post a net loss per share for all of fiscal 2021, all of the loss came in the pandemic-hit fiscal Q1. PVH turned a profit in Q2 and Q3 and should be in the black for the January-ended quarter.
Wall Street expects the company, behind luxury brands such as Tommy Hilfiger and Calvin Klein, to return to profitability in fiscal 2022.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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