5 Top Stocks For August| Investor’s Business Daily

Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. So what are the best stocks to buy now or put on a watchlist? Airbnb (ABNB), Snap (SNAP), Lennar (LEN), Square (SQ) and Mercado Libre (MELI) are prime candidates.

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Since the coronavirus bear market, stocks rebounded powerfully. The strong action reflects rising confidence that the economy will eventually recover from the coronavirus.

Covid remains a concern, but cases have tumbled as vaccinations reach more and more Americans. Nevertheless, the rising number of cases of the new Delta variant is an emerging worry.

The major indexes have shown strength by bouncing back strongly from recent challenges. Stocks were given an additional boost by Federal Reserve Chairman Jerome Powell’s Jackson Hole speech. He reaffirmed the central bank’s plan to scale back its stimulus policies. He also said he is expecting inflation to recede.

Best Stocks To Buy: The Crucial Ingredients

Remember, there are thousands of stocks trading on the NYSE and Nasdaq. But you want to find the very best stocks right now to generate massive gains.

The CAN SLIM system offers clear guidelines on what you should be looking for. Invest in stocks with recent quarterly and annual earnings growth of at least 25%. Look for companies that have new, game-changing products and services. Also consider not-yet-profitable companies, often recent IPOs, that are generating tremendous revenue growth.

IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.

In addition, keep an eye on supply and demand for the stock itself, focus on leading stocks in top industry groups, and aim for stocks with strong institutional support.

Once you have found a stock that fits the criteria, it is then time to turn to stock charts to plot a good entry point. You should wait for a stock to form a base, and then buy once it reaches a buy point, ideally in heavy volume. In many cases, a stock reaches a proper buy point when it breaks above the original high on the left side of the base. More information on what a base is, and how charts can be used to win big on the stock market, can be found here.

Don’t Forget The M When Buying Stocks

A key part of the CAN SLIM formula is the M, which stands for market. Most stocks, even the very best, follow the market direction. Invest when the stock market is in a confirmed uptrend and move to cash when the stock market goes into a correction.

The stock market has suffered a few pullbacks amid inflation fears and concerns about the rise of the delta variant of the coronavirus weighing on the market. But the market is once again back to bullish ways, bolstered by an encouraging earnings season so far.

The broad S&P 500 and the tech-heavy Nasdaq finished last week with a flourish, closing at record highs. The Dow Jones Industrial Average also performed well, climbing nearly 1% for the week and finishing clear of the key 50-day moving average.

The market is back in a confirmed uptrend. Nevertheless, it is important that investors stay disciplined and stick to sound buy and sell rules, especially as the market has rallied back toward extended levels.

Now is a good time to be buy fundamentally strong stocks that have built sound chart patterns. The stocks featured below are potential candidates.

But remember, things can quickly change when it comes to the stock market. Make sure you keep a close eye on the market trend page here.

Best Stocks To Buy Or Watch

• Airbnb
• Snap
• Lennar
• Square
• Mercado Libre

Now let’s look at Airbnb stock, Snap stock, Lennar stock, Square stock and Mercado Libre stock in more detail. An important consideration is that these stocks all boast impressive relative strength.

Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.

Airbnb Stock

IBD Leaderboard stock Airbnb is back above its 152.86 buy point after falling beneath it in a sharp move Thursday. The stock’s breakout Wednesday came with conviction and strong volume, a positive sign.

Shares previously broke out of a bottoming cup with handle base on Aug. 24. ABNB stock is actionable as high as 160.50.

One concerning sign is the stock’s relative strength line, which is declining after a pop early last week. It is important that this key gauge, which reflects a stock’s performance vs. the broader S&P 500, improves.

Overall performance is not ideal as the young company chases growth. At the moment it holds an poor IBD Composite Rating of 28 out of 99.

But while stock market and earnings performance is weak at the moment, Big Money is getting behind the stock. This is important, as the I in CAN SLIM stands for Institutional Sponsorship.

At the moment the stock holds an Accumulation/Distribution Rating of B-. This represents moderate buying among institutions over the past 13 weeks. It boasts two consecutive quarters of increasing fund ownership, with 24% of stock currently being held by funds.

Airbnb’s initial public offering plans were thrown into chaos by the coronavirus pandemic. Not only was the U.S. economy hard, but the tourism industry was particularly affected

Airbnb — along with airlines, hotels and travel booking companies — had a disastrous Q2 in 2020. The firm saw sales plummet 72% from the year-ago period.

Nevertheless, the company launched its IPO in December that raised $3.5 billion. This was way above heightened expectations, making it the largest IPO of the year. Airbnb stock soared by triple digits on its first day of trading.

The recent Stock Of The Day competes with other online travel platforms such as Booking Holdings (BKNG), Expedia (EXPE) and Trip.com (TCOM). It also faces competition from search engines sites such as Google-owner Alphabet (GOOGL), TripAdvisor (TRIP) and Trivago (TRVG).

In 2019, Airbnb began adding trip packages, called Airbnb Adventures. The packages vary widely in price, depending on the length and location of the tour. They include adventures such as a river trip in the Yukon or a bush walk in Kenya.

5 Stocks Near Buy After Strong Rally

Snap Stock

The stock aggressively gapped above a long consolidation buy point of 73.69 on Monday, and is currently trading just below this entry. Investors might want to see Snap stock break a short trend line, using Thursday’s intraday high of 74.95 a better entry point.

Meanwhile, Snap also has a flat base with a 79.28 entry. This won’t show up on MarketSmith pattern recognition, due to the Aug. 10 pop to a record 80.85, but Snap stock reversed lower that day.

While Snap stock slid back last week, it rose on Friday, finishing above its 21-day exponential moving average.

The relative strength line has been taking a breather after a sharp post-earnings spike. Investors will want to see it build momentum here.

Snap has a strong Composite Rating of 92. At the moment stock market performance is far more impressive than earnings, with the firm yet to turn an annual profit. Since the start of the year, SNAP stock is up more than 46%. This is well in excess of the S&P 500’s gain of about 20%.

Institutional support is solid for Snap stock. It boasts eight consecutive quarters of increasing fund ownership, and an Accumulation/Distribution Rating of C. In total, 50% of stock is held by funds.

When the firm posted results July 23 it reported adjusted earnings of 10 cents on revenue of $982 million. Analysts expected Snap to report a loss of 1 cent on revenue of $845 million. Revenue jumped 116% from the year-ago period.

Daily active users jumped 23%, or 55 million, to 293 million, above estimates of 290 million.

“Snap delivered very strong second-quarter results and provided an excellent third-quarter outlook,” Monness Crespi Hardt analyst Brian White said in a research note. “The results demonstrate that Snap has dramatically improved its operational execution over the past couple of years, successfully leveraged new innovations, and enhanced its ad tech stack to capitalize on a greatly improved digital ad-spending environment.”

The social media firm claims it is the best way to reach millennials and teenagers. Big consumer brands have increasingly spent more of their digital advertising dollars on Snap’s platform.

The company, recently featured in the New America, continues to develop new products, an important consideration for the CAN SLIM cognoscenti.

In mid-May, Snap introduced its first augmented-reality smart glasses called Spectacles. The company previously released camera-embedded sunglasses under the same name.

“Snap has continued to differentiate with unique content and innovative experiences for users,” Third Bridge Group analyst Scott Kessler told IBD. “Our experts say Snap has done the best job in terms of social media AR/VR features and functionality, even though Facebook bought Oculus, a leader in this area, some seven years ago.”

The new Spectacles aren’t for consumers yet. The company is making them available to software developers to see what sorts of applications they can create with them.

It also recently introduced an augmented reality shopping feature called “TrueSize.” The likes of Nike (NKE), clothing company Farfetch (FTCH) and watchmaker Piaget are fans of the feature.

Lennar Stock

LEN stock has cup with handle base buy point of 110.24, according to MarketSmith analysis.

Lennar stock is looking bullish after several other homebuilders rallied on strong earnings. Homebuilders could be ready to go another run after a period of consolidation.

The relative strength line is an area where investors will want to see continued improvement. It is off consolidation highs, but has been making mild progress of late. It is important it can find momentum again. Lennar is another strong performer in 2021, gaining almost 42%.

Earnings performance is the foundation of the homebuilder stock’s success, with its EPS Rating a muscular 94 out of 99. Over the past three quarters, earnings have grown by an average of 51%. This is double the growth level sought by CAN SLIM connoisseurs.

Last month the recent IBD Stock Of The Day reported Q2 earnings of $2.65 per share, a 61% jump from the year-ago quarter. Sales grew 22% to $6.4 billion. Deliveries rose 14% to 14, 493 homes. New orders jumped 32% to 17, 157, with a value of $7.6 billion. Lennar’s backlog is up 38% to 24,741 homes.

Lennar management still expects to close 62,000 to 64,000 units in fiscal 2021. But it raised its outlook for the average closing price to $420,000 from $400,000.

Lennar also sees gross margin improvement to 26.5% to 27% from a prior estimate of 25%.

“Our second quarter homebuilding gross margin of 26.1% was the highest second quarter percentage in the company’s history, and a 450 basis point improvement over the prior year,” Co-CEO Rick Beckwitt said in a statement. “The improvement was driven by a higher-than-expected sales price per home delivered of $414,000, reflecting higher sales prices in most of our markets, partially offset by higher land and construction costs.”

Lumber prices, which spiked 300% to all-time highs during the pandemic, have tumbled in recent weeks.

However, there are signs the housing market is cooling off. Census data show new-home sales dropped in June to their lowest levels since the early days of the pandemic in April 2020.

Looking For The Next Big Stock Market Winners? Start With These 3 Steps

Square Stock

PayPal rival Square finished the week strong, closing in the buy zone above a handle entry of 267.57. Shares rebounded on Aug. 20 from the 10-week line, offering aggressive entries.

Investors looking for SQ stock to show a touch more strength could wait for a break of a short trend line from the Aug. 5 peak, somewhere around 273.

Finally, investors also could use 289.33, just above the Aug. 5 all-time high, as a high handle entry. But trying to find early entries has been important over the past several months.

Square stock is still is in a second-stage base. Such early stage patterns are more likely to succeed.

Shares surged 11% in the week ended Aug. 6, hitting a record 289.23 a couple days later. It surged after Square announced a $29 billion deal to pay AfterPay, an Australian-based “buy now, pay later” fintech. Square also reported blowout earnings, though revenue fell short.

The stock currently holds a very impressive Composite Rating of 97, with earnings performance currently its strongest feature. It has managed to post a gain of over 23% so far this year.

Institutional support has been solid of late, with the stock boasting an Accumulation/Distribution Rating of B. Its Sponsorship Rating of A is also impressive.

The recent IBD 50 Stocks To Watch pick posted a Q1 sales increase of 266% to $5.05 billion. Meanwhile, EPS jumped from a loss of 2 cents a share to a 41-cent profit per share. The firm is getting set to report its latest results on Aug. 5.

Square saw a significant revenue increase from its subscription and services-based products. For this segment, revenue was $558 million in the first quarter, up 88%. The company’s popular Cash App delivered strong growth in the first quarter, generating $4.04 billion of revenue, an increase of 666%.

Square stock experienced major growth in 2020 as investors focused on the growth of its consumer Cash App. But the digital payment processor warned that the app expects slower growth as government stimulus payments to consumers wind down.

For Q1, Square disclosed a new $170 million investment in Bitcoin on top of its $50 million purchase in October. Square reports Bitcoin holdings as unrealized gains on investments, excluded from adjusted earnings.

In a tweet on July 15, Square CEO Dorsey said the company will create a new business line to help developers build financial services products focused on Bitcoin. Square is “building an open developer platform with the sole goal of making it easy to create noncustodial, permissionless, and decentralized financial services,” Dorsey tweeted.

Square is a member of the IBD Sector Leaders, IBD’s most stringent and powerful screen.

Nasdaq, S&P 500 Jump To Record Highs On Powell Speech

Mercado Libre Stock

Mercado Libre stock is eying a new entry after forming a cup with handle base. The ideal buy point here is 1,899.43. The stock closed up 4.3% last week, bouncing back after building its handle.

The relative strength line took a breather as it formed its handle, but is now trying to move higher again.

With earnings returning after two quarters of losses, stock market performance has been a strength. This is reflected in its Relative Strength Rating of 87.

The stock’s case is bolstered by its most recent earnings report. Adjusted earnings jumped 23% to $1.37 per share, crushing views for 11 cents. Revenue doubled to $1.7 billion.

Based in Buenos Aires, Argentina, Mercado Libre is the largest provider of e-commerce services in Latin America, and has a big leg up on industry behemoth Amazon.com (AMZN), at least in its own backyard.

As of April, Mercado Libre received nearly 668 million monthly visits within Latin America, according to researcher Statista. Amazon was a distant second for that region, with 169 million.

Mercado Libre provides an e-commerce marketplace for buyers and sellers. Moreover, it hosts platforms where users can create online stores. It also provides financial services technology.

E-commerce sales jumped 96% to $1.14 billion in the second quarter. Revenue from financial technology services grew 89% to $560.4 million. It processed $7 billion in gross merchandise volume, up 46%. Active users climbed 47% to 75.9 million.

The recent IBD Stock Of The Day gets about 93% of revenue from Argentina, Brazil and Mexico. The remaining 7% comes from Colombia, Costa Rica, Chile, Venezuela and Ecuador, among other countries. In total, Mercado Libre operates in 18 countries.

“We believe that our business is showing tremendous momentum despite immense volatility in our key markets due to the frequent closing of physical retail across Latin America,” Chief Financial Officer Pedro Arnt said during a conference call with analysts after the earnings report. “Additionally, three of our top markets — Brazil, Argentina, and Mexico — were listed among the top five growth markets globally.”

Mercado Libre’s financial business, called Mercado Pago, allows customers to make contactless payments, pay utility bills, make peer-to-peer transactions and pay for transportation tickets. Mercado Pago faces competition in digital payments from Brazil-based PagSeguro Digital (PAGS).

Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.

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