money tree (DLTR) and Northrop Grumman (NOC) are among this week’s top stocks to watch as they have settled into bases near key levels in a challenging market.
Norwegian state oil giant equinor (EQNR) is also making the cut along with the funeral home Service Corp. (SCI) and Supply Titan Excelon (EXC.). The five largest stocks share strong characteristics.
Each has a rising line of relative strength at or near its highest level in more than three years, a bullish sign. And three of those stocks have an IBD Composite Rating of 90 or better out of the best possible 99.
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Dollar Tree stock and its peers are all located near buy points. Outbreaks have been struggling lately. But all of these top stocks to watch are trading close to their 50-day moving averages, so if they break out they won’t look extended.
DLTR stocks and Equinor are now just below their 50-day moving averages in cup-with-henkel bases. Exelon stock has fallen further below this key level and is nearing the lows of its flat consolidation. Service Corp.’s stock tries to keep its 50-day moving average on a flat basis. NOC stock tested its 50-day moving average on Friday after retreating below a breakout.
Investors should be cautious when making new purchases in a shaky stock market. As the stocks discussed here show, strong relative strength is no guarantee that the stock price will rise.
But it’s a good time to create watchlists of stocks that could lead the ongoing uptrend.
Stock action: Check out the RS line
On a weekly chart from MarketSmith, the RS lines for Northrop Grumman and EQNR stocks are making bullish new highs, indicated by a blue circle at the end of their RS lines. The RS lines for Dollar Tree, Service Corp. and Exelon are just below May highs.
A rising RS line shows a stock’s outperformance versus the S&P 500 Index. It’s the blue line in the diagrams shown.
The relative strength line is a quick way to spot winners in any market – up or down.
The Relative Strength At New High stock list is a great place to look for quality stocks with strong RS lines. IBD’s stock research platform, MarketSmith, has a screening tool that identifies stocks with RS lines making new highs.
Composite ratings win
The best growth stocks have a Composite Score of 90 or better than 99. The IBD Composite Rating combines key fundamental and technical metrics into a single, easy-to-use score.
Most of the stocks to watch this week hit this bar. Equinor stock leads with a composite value of 97. Exelon follows at 93 and Dollar Tree at 90. Service Corp. still earns a strong 89 and Northrop Grumman 87.
Dollar Tree Stock An inflation game
Dollar Tree shares fell 2.4% on the week to 156, undercutting support at the 50-day moving average. DLTR stock is 6% below a buy point of 166.45 from a deep cup and handle basis.
The rising RS line for DLTR stocks is poised to hit the May highs. According to MarketSmith chart analysis, it is up sharply in 2022 and is not far off the long-term highs set in June 2016.
Dollar Tree stock fell 14% on May 18 target (TGT) warned of a larger than expected margin collapse due to rising fuel and transportation costs. But just six days later, DLTR stock surged 22% on strong gains from Dollar Tree.
discounter and peer Dollar General (DG) raised its outlook for the year after beating quarterly earnings estimates. Buyers, squeezed by price inflation, are looking for cheaper goods and commodities.
Dollar Tree stock has an IBD Relative Strength Rating of 96 out of 99, meaning it has outperformed 96% of all stocks in the IBD database over the last 12 months.
The discounter also earns a strong EPS rating of 83 out of 99.
At the end of May, Dollar Tree posted a 48% jump in EPS on revenue growth of 7%, the highest in five quarters. Wall Street expects DLTR earnings to rise 37% in fiscal 2022, up from a 3% increase last year.
Stock by Northrop Grumman
The B-2 bomber maker fell 3% to 463.82 last week but found support from its 50-day moving average. On June 6, NOC stock surpassed a buy point of 477.36 from a cup and handle base formed after shares peaked in March. But it’s now down 3% below that entry.
The RS line for Northrop Grumman stock is just below the early June highs, suggesting it has outperformed stocks in general. This indicator of strength remains below long-term highs.
NOC stock has an RS rating of 94 and an EPS score of 70. Northrop’s earnings and sales have declined in recent quarters and is expected to see further weakness before a return to growth in the fourth quarter of 2022, according to FactSet .
IBD leaderboard stock Northrop Grumman should benefit from higher defense spending by western powers following Russia’s invasion of Ukraine in February.
The defense giant is also developing the US Air Force’s next-generation intercontinental ballistic missile system called Sentinel.
Russia-Ukraine war stokes Equinor stocks
US-listed Equinor shares fell 3.3% on the week to 35.89, falling below the 50-day moving average on Friday. Equinor stock is still trading at a buy point of 38.80 from a cup and handle basis dating back to mid-April after a strong rally in the first quarter of 2022.
The RS line for EQNR stock is just below the late May highs. It also remains below all-time highs.
Equinor has a 97 RS rating and an 81 EPS score. Equinor’s profits and sales have skyrocketed in recent months as the war between Russia and Ukraine has prompted soaring gas and oil prices.
Amid the invasion of Ukraine, Norway is playing a vital role in supporting energy security for Europe, according to Equinor CFO Ulrica Fearn.
Service Corp Stock
Funeral Service Corp. was down 3.3% on the week to 68.66 and closed just below its 50-day moving average. SCI stock is trading 5% below a buy point of 72.17 from a flat base, supported by a strongly rising RS line.
Service Corp.’s stock carries an RS rating of 93 and an EPS rating of 83.
SCI revenue grew 53% in 2020 and 57% in 2021 amid the deadly Covid-19 pandemic. Wall Street faces tougher quarters.
Analysts polled by FactSet forecast that Service Corp. will post an earnings decline of 23% on a 6% decline in sales this fiscal year as the tailwinds from the pandemic fade.
Exelon shares fell 5.6% for the week to 46.01, breaking the 50-day moving average and nearly hitting the lows of its flat cup base. The handle of the base is no longer valid because its center is below the center of the base. Investors could still use this ‘handle’ entry as an aggressive place to start at 49.96 or maybe 49.33, just above Wednesday’s high. The official buy point is at 50.81.
The RS line for EXC shares has retreated from a 52-week high. It’s well below long-term highs.
Utility giant Exelon has an RS rating of 95 and an EPS rating of 83. Exelon’s earnings per share fell 9.4% in 2021, but it is expected to rebound 8.8% in 2022, albeit still pennies below 2020 levels. Sales are expected to plummet 47% in 2022 before rebounding to a 3% gain next year.
Exelon markets and sells energy after spinning off its power generation assets earlier this year. The outsourced company is called constellation energy (CEG).
For more great stock ideas like Dollar Tree stocks, check out IBD’s proprietary watch lists like the IBD 50 and the IBD Big Cap 20.
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