The top stocks seized buy points or offered early entries from bullish rebounds, following their latest earnings reports.
All five stocks have improving relative strength lines. Some, including UnitedHealth stock and Goldman Sachs stock, have RS lines at or near highs.
As the stock market recovers, 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.
Since the top five stocks just reported results, they might be less volatile heading into the biggest earnings week than other stocks that are yet to report. IBD’s Options Strategy can help investors to limit risk around earnings season.
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.
This week, Crocs stock leads with a superior Composite Rating of 99. It’s followed by Goldman Sachs with a 97, CSX stock with an 88, Cleveland-Cliffs with an 83, and United Health with an 82. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
On Oct. 21 Crocs crushed third-quarter views, with earnings vaulting 163% and sales leaping 73%.
Crocs stock jumped 9.2% on the week, reclaiming its 10-week moving average. It’s in buy range from the 10-week rebound, which offers a buy point around 144.41, according to MarketSmith chart analysis. The 10% buy range runs to 158.85.
The RS line is starting to trend higher but well off September highs.
Plastic clogs maker Crocs earns a superior IBD Relative Strength Rating of 96. That means it has outperformed 96% of all stocks over the past 12 months. Even better, Crocs shows an EPS Rating of 99, the highest possible.
On an adjusted per-share basis, Crocs earnings doubled in 2020. In all of 2021, Wall Street expects Crocs earnings to grow a further 129%, then slow to a 22% gain in 2022, according to FactSet.
In the Covid-19 era, Crocs’ clogs — easy-to-clean, nonslip and colorful — struck a chord. And they tapped a hot trend: personalization. Crocs’ Jibbitz — fun, quirky plastic charms popped into the holes in Crocs clogs — is a big seller.
Goldman Sachs Stock
Shares of Goldman Sachs provide an alternative or early entry, near 400, from a bounce off the 10-week line. More traditionally, Goldman Sachs stock is just 2% below a 420.86 buy point from a flat base.
Investment bank Goldman Sachs on Oct. 15 smashed Q3 earnings views, capping a stronger-than-expected earnings week for big banks. Year on year, Goldman Sachs earnings rose 54% while sales climbed 26%.
The RS line for Goldman Sachs is looking to make a new high. But it remains below 2016 highs.
Goldman Sachs stock owns a solid RS Rating of 89 and an equally solid EPS Rating of 92. On an adjusted, per-share basis, Wall Street expects Goldman Sachs earnings to grow 83% in 2021, accelerating from a 33% gain in 2020. But the investment bank is likely to see both earnings and sales decline in 2022, according to FactSet.
UNH stock topped a 431.46 entry from a flat base. United Health stock is near the top of the buy range from its latest breakout, which goes to 453.03.
On Oct. 14, managed care giant United Health beat Q3 views and raised outlook for the full year. Year on year, United Health earnings increased 30% while revenue was up 11%.
After flirting with a breakout on its own earnings, UNH stock closed in buy range last week following strong results from rival Anthem (ANTM).
The RS line for United Health stock is making a new high after moving sideways in the past year.
United Health has a 74 RS Rating and a 78 EPS Rating. For all of 2021, analysts expect United Health earnings to rise 15%, improving from a 12% gain in 2020, and to grow a further 15% in 2022.
In Q3, CSX earnings jumped 34% as revenue rose 24%. And CSX’s operating ratio, a key financial metric for railroads, also improved.
The RS line for CSX stock is trending up sharply, but well below 2019 highs.
CSX stock bears a mediocre 65 RS Rating but a superior 92 EPS Rating. Both earnings and sales fell in 2020 amid the pandemic. But in 2021 and 2022, analysts expect CSX earnings to climb 27% and 15%, respectively.
Several other rail stocks are performing well.
Shares of Cleveland-Cliffs are forming a cup base with 26.61 buy point. They’re well below the entry for now. CLF stock also offers an early entry from a rebound off the 10-week line, around 22.24.
On Oct. 22, the steel producer soared nearly 13% after swinging to Q3 EPS of $2.33 as revenue more than tripled.
The RS line for CLF stock is rising again but below August’s high. It has rallied sharply from the 2020 pandemic lows but remains far below 2012-2013 highs.
CLF stock has a 91 RS Rating and 63 EPS Rating. In 2020, Cleveland-Cliffs lost 32 cents per share. But Cleveland-Cliffs earnings are surging now.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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