Finding the best growth stocks to buy is no easy task. But you can streamline your search by following a simple buying checklist. And regularly checking IBD’s stock screens can help you put the best potential stock picks on your list of stocks to watch.
NVDA stock soared to a new high in July before pulling back to form a cup with handle. Nvidia recently reported earnings, topping quarterly estimates. The stock went on to break out of that chart pattern and soar to yet another all-time high. Nvidia stock’s relative strength line is also at a new high.
After posting 101% earnings growth on July 28, FB stock found support at its 10-week moving average and is now testing a new buy point in a third-stage flat base as its relative strength line hits a new high. Meanwhile, GOOGL stock has continued to hit new highs.
After breaking out in early July, AMZN stock has fallen below its 10-week moving average. While testing support at that benchmark line, Amazon has made a new ‘Buy Now, Pay Later‘ (BNPL) deal with payment company Affirm (AFRM). NFLX stock is testing a new breakout of its own.
Square (SQ) rival PayPal (PYPL) is also on this list. While SQ stock and PYPL stock have both tapped into recent trends in Bitcoin and other cryptocurrencies, PayPal dropped below its 10-week moving average in heavy volume after reporting earnings on July 28. It’s now moving back above that line. Paycom Software (PAYC), which was recently featured in the IBD Stock Analysis, has earned a spot of the IBD Long-Term Leaders watchlist.
You’ll find top IPOs the IPO Leaders screen.
Find The Best Stocks To Buy And Watch
The company names will change over time and across fluid stock market cycles. But the traits of winning stocks you look for remain the same.
Here’s an effective way to hone your stock picks and zero in on the best stocks to buy and watch. Focus on stocks with exceptional earnings growth that are breaking out of a chart pattern during a strong market uptrend.
For beginning investors unsure of how to start investing in stocks (or for experienced investors looking to save time), start with this simple three-step routine.
Maintaining your list of stocks to buy and watch is an ongoing process. Regularly use lists like IBD Long-Term Leaders, Sector Leaders, IBD 50, IBD Big Cap 20 and IPO Leaders to continually find potential stock picks.
Be sure to also have sound rules for when to sell stocks since even the best stocks eventually falter, especially when the general market comes under pressure. Last year’s coronavirus stock market crash and rebound only reinforced that reality.
Stock Picks: Growth Stocks — Focus On Big EPS Growth
Through a groundbreaking study of 100-plus years of market history, IBD identified seven common traits of winning stocks, with earnings growth being one of the most critical factors.
During their big moves, top performers like PYPL, GOOGL, NVDA, AMZN and NFLX have all shown explosive, even triple-digit, earnings growth as their share prices rose dramatically. New IPO stocks to watch, such as Yeti, TaskUs, InMode and CRWD stock have also shown many of these key stock-picking traits.
So as you go through a buying checklist to evaluate your potential stock picks, look for companies posting 25% or higher earnings growth.
Be sure to also use IBD Stock Checkup to check your stock’s EPS Rating and many other key stock-picking metrics. You’ll instantly see if the stock earns a pass or fail grade for both its quarterly and annual earnings growth.
Tips On Evaluating Earnings Growth
Stock Picks: Look For Growth Stocks Forming Chart Patterns
Just because a company has stellar earnings growth doesn’t mean it’s a good time to buy its stock. Several other factors come into play, including the market trend and the chart action. You can significantly improve the performance of your stock picks — and reduce your risk — if you make sure the stock chart and the market are giving you the green light to buy.
Chart patterns serve as a launchpad for a stock’s new climb. Also known as bases or consolidations, these patterns form after a stock has already climbed and is now taking a breather to hopefully set up a new run. The ideal time to buy a stock is when it completes that base and proves its strength by punching through a point of resistance in heavy volume.
The most profitable and common chart patterns to look for are the cup with handle, double bottom and flat base. Once you identify companies with strong earnings that are also forming one of these three patterns, you’ll be well on your way to finding the best stocks to buy and watch.
Winning moves from FB stock, AAPL, AMZN, NFLX, GOOGL, NVDA stock and countless others in just the past few years prove this point. Virtually all of the market’s biggest winners form one or all three of these patterns as they make their big climbs.
These chart patterns repeat again and again, year after year.
As an historical example, see the chart below for how Nvidia stock launched what became a 750% gain beginning in 2016. In 2018, Nvidia then corrected sharply, as even the best growth stocks eventually do. That episode is a good reminder of why investors also need to follow proven sell rules.
Then look at an NVDA stock chart now. Nvidia has rebounded strongly from that correction and continues to hit new highs.
Veeva stock is another example. The medical software company rose 531% from a May 2016 cup-with-handle breakout through July 19, 2019. It was featured in the IBD 50 list of top growth stocks before it launched that move. Like Nvidia, VEEV stock rebounded from an extended correction and returned to new-high ground after its most recent breakout before running into resistance in August of this year.
Tips On How To Read Stock Charts
Stock Picks: Where To Find The Best Stocks To Buy And Watch
To help streamline your research, IBD provides a collection of time-tested stock lists. These screens are computer-generated, based on proven criteria rather than opinions.
The criteria comes from our extensive study of over 100 years of market history in which we identified the common characteristics winning stocks share in the early stages of a big move. With these screens, we highlight today’s stocks that are most strongly showing those same telltale traits.
While you should never buy a stock just because it’s on one of IBD’s screens, these lists are an excellent starting point for building a high-quality, actionable watchlist.
Be sure to regularly check IBD Stock Lists Update to see which companies just came on and off IBD’s top screens.
Tips On Where To Find The Best Stocks
Tips On Finding The Best Stocks To Buy And More
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
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