Over the past several weeks, ServiceNow (NOW) and the other top stocks to watch consolidated near buy points.
They boast favorable outlooks for diverse reasons. For example, the looming holiday season for Nike stock and the shift to electric cars for Albemarle stock. For NXP, the rebound in truck production as auto chip supplies improve.
All five stocks have strong or improving relative strength lines. The RS lines for InMode stock and ALB stock are especially bullish, just below highs after sharp rallies in the past year.
Investors should focus on stocks with high RS lines. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.
Albemarle is the No. 1 holding of Global X Battery Tech ETF (LIT), also on the IBD Leaderboard, a curated list of leading stocks that stand out on technical and fundamental metrics. Tesla (TSLA) is the No. 2 component in the LIT ETF.
Stock Market Rally: Watch 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.
In addition, the best growth stocks have an IBD Composite Rating of 90 or better, out of a best-possible 99.
Many of the stocks to watch this week meet that bar. InMode and Service Now lead with a 98 each, NXP Semiconductors follows with a 93, and Nike stock and Albemarle with an 85 each. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
ServiceNow is consolidating near a 681.20 flat-base buy point, recently forming a three-weeks tight pattern that could provide a 707.70 alternate entry, according to MarketSmith chart analysis.
The software stock seemed a bit extended when it broke out in October. But the 50-day/10-week lines are catching up. Those areas are a good place to buy a Long-Term Leader such as NOW stock.
The RS line has rallied from early June lows. It’s now just below the October high.
In all of 2021, Wall Street expects ServiceNow earnings to leap 427%, then slow to a 16% gain in 2022, according to FactSet.
ServiceNow earnings rose 28% in Q3, beating views as sales increased 31%. Subscription revenue also increased 31%.
The Santa Clara, Calif.-based software company helps IT departments track and manage services. Its self-service tech portal gives employees access to workflow tools.
Those products enabled other companies to keep working remotely during the pandemic.
Shares of Nike sit just below a 179.20 high handle entry after retaking the 10-week line around late October. On Friday, Nike stock rose 2.1% to 174.88, breaking the trend line in the handle and moving above the left-hand side of the cup base.
Shares rose as Nike raised its dividend by 11% to 30.5 cents a share. NKE stock investors shrugged off supply-chain concerns for the holiday quarter from Foot Locker (FL), a major Nike seller.
The pattern formed as investors assessed whether the holidays will test Nike’s supply chain. The RS line for the Dow Jones giant has improved since late September. It’s now just below early August highs.
Nike stock owns an average RS Rating of 75 and an EPS Rating of 74.
Analysts expect Nike earnings to grow 30% per share in 2021, then a further 19% in 2022, FactSet says. In 2019, Nike earnings fell 20% amid the coronavirus pandemic, which originated in China.
On Sept. 24, Nike earnings modestly beat estimates but sales missed and guidance was weak, amid supply headwinds.
NXP Semiconductors Stock
Shares of NXP Semiconductors are roughly 3% below a 227.60 cup-with-handle entry and above the 50-day line. Investors could buy NXPI stock now as an early entry.
The RS line for NXPI stock is improving but still below April highs.
NXPI has a 77 RS Rating and a 68 EPS Rating. Wall Street expects NXP earnings to recover 89% in 2021, and to grow a further 18% in 2022. In 2020, NXP Semiconductors earnings plunged 24% amid the pandemic.
On Nov. 1, NXP gave bullish revenue guidance for the current quarter. “We continue to take additional actions to assure supply to our customers, which underpins our continued confidence in robust growth in the remainder of 2021 and through 2022,” CEO Kurt Sievers said in a statement.
For much of this year, NXPI stock went sideways amid the pandemic-fueled global chip shortage, which hit automakers especially hard. Now the chip stock is rising along with improving semiconductor supplies. Moreover, cars are getting smarter and more electric, which means more semiconductors.
Netherlands-based NXP is one of the top suppliers of auto computer chips.
Shares of lithium miner Albemarle have been trading tightly, forming a little shelf modestly above the buy zone from a prior consolidation — a cup-with-handle base on a daily chart or cup-without-handle on a weekly. ALB stock was on track for a three-weeks-tight pattern, but Friday’s 2.5% gain to a closing high meant that the weekly move exceeded the 1.5% limit.
Still, Friday’s action offered an add-on buy point for Albemarle stock. The RS line for ALB stock is making highs after a big summer rally.
ALB stock bears a superior 96 RS Rating but a poor 46 EPS Rating. In 2021, analysts expect Albemarle earnings to fall a further 3% before rebounding to 48% growth in 2022.
On Nov. 3, Albemarle posted a 4% EPS drop but beat estimates, while revenue grew 11%. The company also hiked full-year guidance.
Lithium prices are surging again and Albemarle is expanding its capacity. In 2020, Albemarle earnings dived 32% after lithium prices crashed.
Albemarle uses a lot of fixed-price contracts, so it isn’t getting an immediate payoff from surging prices, but investors are betting they will.
In addition, the newly passed $1 trillion Biden spending package includes $555 billion in clean energy incentives. Lithium is used for batteries, and demand is expected to grow as countries around the world shift to battery-powered electric vehicles.
Battery factories are ramping up capacity faster than lithium supply.
Market Rally Sends Mixed Messages; What To Do Now
InMode stock retreated 5.2% last week, including a 4.2% drop on Friday. But it has a still-valid 99.37 buy point from a three weeks-tight pattern. The recent trading comes just above a short and wild consolidation.
If InMode stock breaks a recent downtrend, it could offer an aggressive entry before the official buy point. Alternatively, INMD stock could fall or pause until finding support at the fast-rising 50-day or 10-week line, offering another possible buying opportunity.
The RS line for INMD stock is slightly below a late October high, following a sharp rally in the past year.
InMode stock has a perfect 99 RS Rating and a 99 EPS Rating as well.
Wall Street sees InMode earnings accelerating from 29% growth in 2020 to 84% in 2021, before slowing to a 6% gain in 2022.
In Q3, the medical aesthetics company saw earnings increase 75%, beating estimates, as sales climbed 58%. InMode makes products for body and face contouring, vascular and pigment issues, and more. The pandemic led to a boom in plastic surgery, after lockdowns eased and gyms reopened.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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