Morgan Stanley (MS), Pool stock, ICICI Bank (IBN), Discover Financial Services (DFS) and CarMax (KMX) and are five top stocks to watch this week, working on bases or near buy points after quarterly earnings.
Earnings season adds a great deal of risk for stocks, so it’s always nice to check out top stocks with earnings out of the way.
A highly rated stock, Pool (POOL) earns a spot on IBD Leaderboard, a curated list of stocks with the most potential for big gains. Pool stock also is on IBD Long-Term Leaders, a list of stocks with a long history of market outperformance and solid, steady earnings growth.
All the top five stocks have rising relative strength lines in the short term. In the longer term, the picture is more mixed. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the charts shown.
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.
Pool boasts a near-perfect Composite Rating of 98. It’s followed by Discovery stock and Morgan Stanley with a 93 each, CarMax with a 91 and ICICI Bank with an 83. The Composite Rating combines five separate proprietary IBD ratings, based on key fundamental and technical criteria, into one easy-to-use score.
After strong Pool earnings and guidance July 22, the distributor of swimming pool supplies found support at its 50-day moving and near the top of a prior base. It’s in buy range from support off the 50-day line as well as the prior 449.54 flat-base buy point in a bullish base-on-base pattern, according to MarketSmith chart analysis.
Pool’s rebound moved back above its 21-day line on Friday.
Ahead of earnings, IBD highlighted Pool stock in a Stock of the Day column. The company, which also supplies irrigation and landscaping products, benefited as demand for outdoor amenities rose in a lingering pandemic.
The RS line for Pool stock is just below early July highs. It has been rising since late March, after a slide. As the monthly chart shows, Long-Term Leader Pool has a great track record vs. the S&P 500.
Covington, La.-based Pool has dull IBD Relative Strength Rating of 77. That means it has outperformed just 77% of all stocks over the past 12 months. However, Pool boasts a near-perfect EPS Rating of 98 out of a best-possible 99.
In 2020, Pool grew earnings 44% amid the pandemic. And in all of 2021, Wall Street expects Pool earnings to grow 59% as sales rise 28%, according to FactSet. Both earnings and sales are seen rising further in 2022, though more modestly.
U.S.-listed shares are just above an 18.27 cup-with-handle buy point. ICICI stock rose 3.9% to 18.29 on Friday. The base stretches back to February and formed around the 50-day moving average. But the handle has formed above the 50-day line and in the top half of the pattern, which are positive signs.
The top Indian bank on Saturday reported fiscal first-quarter core operating profit rose 23% vs. a year earlier. After-tax profit jumped 83%. Loans grew 17% and deposits 16%.
The RS line for ICICI stock is rising but well below the consolidation peak.
ICICI stock owns a solid RS Rating of 85 but a mediocre EPS Rating of 65. The bank grew earnings 91% in 2020. Analysts expect ICICI earnings to rise a further 31% in 2021 as revenue grows 11%.
Discover Financial Services Stock
The credit card issuer briefly retook a 125.48 flat-base buy point July 21, but fell back before rebounding from the 10-week line. DFS stock edged lower on Friday, but climbed 2.1% to 123.01 for the week. Investors could use the buy point or focus on 127.75, a dime above the July 13 high, as an alternative entry as Discover stock rebounds off the 10-week line.
On July 21, Discover easily beat views for its fiscal second quarter.
The rising RS line for Discover stock is just below June’s high. It rallied strongly in the past year.
Rival Capital One (COF), which also has released earnings, shows similar chart action.
Discover Financial Services has 93 RS Rating and a 78 EPS Rating. Both earnings and sales fell in 2020 amid the pandemic. But on July 21, the company beat earnings views for its second quarter. Analysts expect Discover earnings to rebound 330% in fiscal 2021 as revenue grows 8%.
Shares of the nation’s largest retailer of used cars briefly topped a 137.63 cup-with-handle buy point July 20. For the week, KMX stock rose 2.9% to 134.79. Much of the base formed below the 50-day line, which isn’t a great sign. But it’s a first-stage base, which means higher odds of success. And the handle has formed above the 50-day line.
On June 25, CarMax stock retook the 50-day line after blowout earnings for its fiscal first quarter. It has gained from soaring prices as the market for used cars booms.
The RS line for CarMax stock is rising but below the consolidation peak. And it has moved sideways in the longer term.
CarMax has a 73 RS Rating and 85 EPS Rating. Both earnings and sales fell in fiscal 2021 amid the pandemic. Analysts expect CarMax earnings to rebound 55% in fiscal 2022 as sales rise 36%. It’s seen growing further, albeit more slowly, in 2023.
Morgan Stanley Stock
Shares topped a 94.37 flat-base buy point July 21, after again finding support at the 50-day line. Morgan Stanley stock rose 3.6% to 94.51 last week. The 5% buy zone goes to 99.08.
Morgan Stanley easily beat Q2 views on July 15.
But on July 19, MS stock undercut its 50-day line, though it closed just below that level. Shares quickly rebounded, with Morgan Stanley stock breaking out on Wednesday.
The RS line for Morgan Stanley stock is rising and just below the consolidation peak. It rallied nicely in the past year.
Morgan Stanley stock earns a strong 90 RS Rating and a solid-enough 84 EPS Rating. The money-center bank grew earnings 32% in 2020. Analysts expect Morgan Stanley earnings to increase 11% in 2021 as sales climb 19%. Both earnings and revenue are expected to decline modestly in 2022.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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