7 Stocks on the Cusp of a Breakout

Stocks to buy

It’s time to look for strong, potential breakout stocks. All as the outlook for the U.S. economy and the overall stock market start to improve. For one, there are multiple signs that the economy is not headed for a significant downturn.  In fact, in an interview with CNBC, Bank of America (NYSE:BAC) CEO Brian Moynihan said the yield-curve inversion is not a sign of an imminent recession, but rather due to the attractiveness of the U.S. and of the American dollar.

Meanwhile, despite all the hand-wringing about higher consumer debt, America’s household debt to GDP ratio actually fell sharply to 75.6% in July 2022 from 80% in Jan. 2021 and is little changed from 74.9% in July 2019.  Finally, with inflation expectations dropping and most experts agreeing that inflation will continue to fall, inflation and the Fed seem less worrisome. Given all of these points, medium-term and long-term investors should look for breakout stocks to buy at this point.

For this article, I looked for stocks that were trading above their key, 50-day, and 100-day moving averages. I also tried to find names with solid volume, underlying fundamentals, and high relative strength scores. Each of the stocks on this list will only have some of, not all of, these attributes.

RACE Ferrari $224.27
INMD Inmode $37.49
EL Estee Lauder $247.31
XPEV Xpeng $10.34
SHLS Shoals Technologies $25.58
IBM International Business Machines $150.45
MGM MGM Resorts $37.04

Breakout Stocks: Ferarri (RACE)

Ferarri (NYSE:RACE) closed on Dec. 12 at $222.53, well above its 50-day moving average of $202.69 and its 200-day moving average of $200.96. Additionally, the relative strength score of RACE stock is a strong 88, showing that it belongs on this list of breakout stocks.

Better, higher-end consumers are still splurging, which is great news for Ferrari. In fact, the CEO of Saks Fifth Avenue’s e-commerce unit noted, “We’re still getting the big growth online that we want. Compared to the pre-pandemic third quarter of 2019, Saks’ [gross merchandise value] sales increased 115 percent,” as reported by Yahoo Finance.

So high-end consumers are still splurging. I think the Street is starting to internalize that message, and, consequently, RACE stock is starting to rev up.

Breakout Stocks: InMode (INMD)

Source: Vova Shevchuk / Shutterstock.com

InMode (NASDAQ:INMD), which develops minimally invasive technologies used to enhance patients’ appearance, closed at $36.78 on Dec. 12. According to Yahoo Finance, InMode’s 50-day moving average on that day was $34.32, while its 200-day moving average was $31.38.

From Oct. 26, the day before InMode reported stronger-than-expected third-quarter results, until Dec. 12,  its shares have climbed 7%. From Sept. 28 to Dec. 12, INMD stock soared 27%.  The shares are not far from $38.39, the level at which they closed on Nov. 30. That was their highest close since March 30. According to Investor’s Business Daily, InMode’s Relative Strength rating is 87 out of 100.

As I’ve noted in previous columns, I believe that the company is benefiting from consumers’ increased spending on their appearances as they travel to see friends and family and resume working in offices and attending social events. Additionally, the shares’ price-earnings multiple should rise as fears about the economy and sky-high interest rates recede.

Breakout Stocks: Estee Lauder (EL)

Source: Epic Cure / Shutterstock

Estee Lauder (NYSE: EL) closed on Dec. 12 at $244.44, well above its 50-day moving average of $217.39. It’s also closing in on its 200-day moving average of $248.23.  The Dec. 12 close represented the name’s highest closing level since Sept. 14.

On Nov. 2, the cosmetics maker reported third-quarter earnings per share of $1.37, versus analysts’ average estimate of $1.29. The company’s top line climbed 2% year-over-year and was in line with the mean estimate. Going forward, the company, which has a sizeable business in China, is poised to benefit a great deal from the reopening of that country.

On Nov. 2, in reaction to the Q3 results, 7.67 million of EL’s shares changed hands, versus the stock’s current three-month average volume of 2 million.  On Nov. 2,  the stock dropped to $189.38 from $206.13 the previous day. However, on Nov. 4, it climbed to $209.89 on high volume of 6.16 million. On Nov. 30, EL stock jumped to $235.79 from $214.94 on Nov. 29. The volume on Nov. 30 was a strong 3.4 million.

Breakout Stocks: Xpeng (XPEV)

Source: shutterstock.com/CC7

Xpeng (NYSE:XPEV) is well-positioned to get a big boost from the reopening of China.  The shares closed on Dec. 12 at $10.47, significantly above their 50-day moving average of $8.75. And while, after struggling for many months, the stock is still well below its 200-day moving average of $20.52, the shares soared an electrifying 51.5% (3.56/6.91) between Nov. 26 and Dec. 12.

Meanwhile, financial-news pundits are starting to notice that the company is becoming a leader in the autonomous-driving race. In a column published last week, for example, I wrote that Xpev “looks poised to become a self-driving pioneer in China.” And on Dec. 10, Seeking Alpha columnist Juxtaposed Ideas stated that “XPEV may potentially outperform at a price target of $62.75…significantly boosted by its promising autonomous progress.”

It appears that the combination of the reopening of China, combined with Xpeng’s strides in self-driving vehicles, is causing institutional investors to start buying XPEV stock. In recent weeks, the shares have rallied on larger than normal volume. For example, on Dec. 2, XPEV stock soared to $11.45 from $9.97 on the previous day. Nearly 95 million shares of XPEV x changed hands on Dec. 2. And on Nov. 30, 173.5 million shares of XPEV were traded, with the shares bouncing to $10.81 from $7,34 on the previous day. XPEV reported its third-quarter results on Nov. 30.

Shoals Technologies (SHLS)

Source: Zurijeta / Shutterstock.com

A maker of components for solar-energy projects, Shoals Technologies (NASDAQ:SHLS) has also gotten a boost recently from events involving China.  More specifically, two actions taken by the Biden Administration towards Chinese solar producers should help ensure that there are enough solar panels to meet the demand for them in the U.S. As a result, Shoals should be able to sell more of its products and turn more of its large backlog into revenue.

On Dec. 2, U.S. Customs agreed to allow ” a significant shipment of solar panels” made by China’s JinkoSolar to be released into the market. The agency had held the panels because it was suspected that they had been made by slaves in violation of American law. Also on Dec. 2, the Commerce Department determined that several Chinese panel makers, including JinkoSolar (NYSE:JKS), had not been avoiding U.S. tariffs by manufacturing their panels in Southeast Asian countries.

Shoals closed on Dec. 12 at $24.05, above its 50-day moving average of $23.84 and its 200-day moving average of $19.85. The shares advanced about 20% between Sept. 26 and Dec. 12. On Dec. 2, the name closed at $24.79, up from $23.30 on the previous day, as 17.3 million shares of SHLS changed hands. Over the last three months, the stock’s average trading volume is 2.46 million.

IBM (IBM)

Source: Wright Studio/Shutterstock.com

IBM (NYSE:IBM) stock closed on Dec. 12 at $149.21, well above its 50-day moving average of $136.76 and its 200-day moving average of $133.28.  The shares closed very close to their 52-week high of $150.46. IBM’s shares have a very strong relative strength rating of 92 and an A+ Accumulation/Distribution rating, which indicates that institutional investors have been buying many shares of the stock over the last 13 weeks.

On Oct. 19, IBM reported stronger-than-expected third-quarter results, as its top line climbed 6.4% year-over-year and it generated $800 million of free cash flow. For all of 2022, the tech giant, whose cloud business has been rapidly growing, predicted that its free cash flow would be roughly $10 billion. On Oct. 20, the day after IBM reported its Q3 results, its shares climbed to $126.79, versus their prior day close of $121.07. On Oct. 20, 13.6 million shares of IBM changed hands, versus the current three–month average trading volume of 4.67 million.

MGM Resorts (MGM)

Source: AdityaB. Photography/ShutterStock.com

MGM (NYSE:MGM) closed on Dec. 12 at $36.90, above its 50-day moving average of $34.64 and its 200-day moving average of $35.17.  The shares have a fairly good relative strength rating of 81. On Dec. 5, Barry Jonas, an analyst at investment bank Truist, upgraded MGM stock to “buy” from “hold.” Moreover, he increased his price target on the name to $50 from $40. The analyst expects MGM to beat the stock market next year, as conferences return to Las Vegas and the city benefits from a high number of popular events. Jonas called the stock’s valuation “compelling.”

Moreover, as I’ve pointed out in the past, the company’s joint venture, BetMGM, which specializes in sports betting, is expected to start generating positive EBITDA in 2023. On Dec. 5, the shares closed at $37.80, up from $37.08 on Dec. 4. On Dec. 5, 5.58 million shares of the stock changed hands, versus the name’s current three-month average trading volume of  3.18 million.

On the date of publication, Larry Ramer held long positions in XPEV, SHLS, MGM, and JKS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

 

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