With the stock market plunging and the S&P 500 index and Dow Jones industrial average plunging to right above their 200-day moving averages, this is not a good time to making new purchases. But it’s a good time to be looking for growth stocks to add to your watch list. In the IBD 50 list of top stocks, five are seen reporting faster earnings growth next quarter: Nvidia (NVDA), Alibaba (BABA), Palo Alto Networks (PANW), Five Below (FIVE), Paycom Software (PAYC).
All five stocks here Composite Ratings above 95, meaning that they outperform more than 95% of all stocks based on key metrics, including earnings. All-time stock winners often have Composite Ratings of at least 95 near the start of their big runs. Paycom Software and Palo Alto Networks have best-possible 99 Composite Ratings. Alibaba has a 98 CR, followed by Five Below at 97 and Nvidia at 96.
Alibaba
Alibaba is expected to report earnings per share growth of 49% for the current quarter after a 25% year-over-year gain in the latest quarter. The Chinese e-commerce giant actually missed December-quarter EPS estimates slightly as it spends heavily on cloud computing and other projects. But that’s helped fuel huge revenue gains. Sales surged 66% in the latest quarter, the best in 15 quarters. That top-line growth is now seen putting the gas on the bottom line.
Alibaba has been working on a consolidation with a 206.30 buy point, but the stock tumbled 9.5% last week to 181.20, falling through its 50-day moving average. Blame the general stock market sell-off and a tumble by archrival Tencent (TCEHY), following its earnings report last week.
Nvidia
Nvdia earnings per share are expected to soar 84%, improving from the last quarter of 59%, which barely slowed from the prior quarter’s 60%.
It’s amazing that Nvidia could be accelerating earnings growth after such a long run of huge year-over-year growth. But the graphics-chip maker is benefiting from booming demand in artificial intelligence, autonomous driving and more.
Nvidia stock sank 7% last week to 232.97, dropping below its 50-day line on Friday.
Nvidia holds its GPC Technology Conference this week, starting Monday, covering artificial intelligence, autonomous driving, augmented reality and more. CEO Jensen Huang will give a keynote address at 9 a.m. PT on Tuesday.
Palo Alto Networks
Palo Alto Networks’ EPS should ramp up from 37% in the latest quarter to 56%. Revenue growth nudged up to 28% in the latest quarter from 27%. Shares of the cybersecurity firm fell 3% to 181.76 last week, but that was better the major stock market indexes. Palo Alto stock is well extended from a February breakout at 156.95.
Five Below
The teen-focused retailer reported better-than-expected fourth-quarter earnings last week, with EPS up 31% vs. a year earlier. Five Below guided current-quarter EPS estimates to 31-34 cents vs. the then-consensus of 23 cents. Not all analysts have yet revised their earnings estimates following the Q4 report and guidance. But if take the midpoint of Five Below’s target, 32.5 cents, then earnings should surge 117%. That’s by far the strongest expected growth and biggest acceleration of the stocks cited here.
Five Below rallied 4.2% on Thursday following earnings. The stock rose to 72.20 intraday Friday, briefly clearing a 71.69 cup-with-handle buy point. But with the S&P 500 index and stock market selling off, Five Below reversed to close down 1.3% to 69.03. The stock did managed to eke out a 0.1% weekly gain.
Paycom Software
Paycom Software earnings should pop to 91% from 61%. Paycom is one of several highly rated software companies specializing in payroll and human resources. Business software generally has been performing well.
Paycom stock hit a record high on Wednesday, but closed the week down 3.2% to 106.79.
Earnings And Stock Chart Analysis
Ultimately, earnings are what drive stocks and the broader stock market higher. So while active investors should pay close attention to stock charts, you have to remember the fundamentals.
But the fundamentals and technicals go hand in hand. It’s not surprising that top stocks expected to accelerate profit growth should have relative strength lines at or near record highs. The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, makes it easy to spot true stock market winners from laggards. In a struggling stock market like this one, investors should look for growth names with RS lines at or near highs. These may be the stocks that lead the next rally.
