The S&P 500’s winning stocks were limited to select names and groups this year, but that has started to change. Here, we highlight five leading S&P 500 stocks to buy and watch as the market uptrend continues to broaden.
S&P 500 Stocks To Buy And Watch: Caterpillar Nears Highs
Dow Jones component Caterpillar (CAT) tapped the 293.88 buy point of an irregular base on Wednesday before retreating.
Shares climbed from the bottom of a cuplike base after the heavy equipment maker reported third-quarter profit and revenue that beat estimates on Oct. 31. On the downside, Caterpillar cited a lower order backlog and projected only “slightly” higher fourth-quarter revenue.
CAT reclaimed its 50-day moving average on Dec. 1, then continued a lofty climb in several days of heavy volume.
The S&P 500 company’s third-quarter earnings grew 40%, which lagged the 70% and 75% in the prior two quarters. Sales growth eased to 12% from 17% and 22%. Analysts expect full-year earnings to grow a robust 49%, then stall in 2024.
CAT holds a B+ IBD Accumulation/Distribution Rating, indicating fairly heavy institutional buying over the last 13 weeks. Mutual funds added CAT shares in September, with 2,828 owning the heavy-equipment maker, up from 2,757 in June. Fidelity Contrafund (FCNTX), which is in the IBD 50 Mutual Fund Index, increased its position in the September quarter.
Another positive sign for the stock is the 1.4 up/down volume ratio. A reading above 1.0 indicates higher volume on up days than down days over the past 50 days.
Buffet Stock Nears Buy Point; Charlie Would Approve
Warren Buffett investment firm Berkshire Hathaway (BRKB) is nearing the 363.19 buy point of a cup-with-handle base, according to MarketSmith pattern recognition. Investors seemed to recover from the news that its longtime vice chairman, Charles Munger, died on Nov. 8 at the age of 99.
The base began as the S&P 500 stock hit an all-time high of 373.34 on Sept. 19. Shares sank until late October, when it reversed course and tested the 50-day line ahead of Berkshire’s third-quarter earnings report on Nov. 6.
Shares wavered before overtaking the 50-day line on Nov. 14. Note that the relative strength line is in a downtrend, which is a negative divergence.
Berkshire’s operating earnings rose to $10.8 billion, up from $7.7 billion in last year’s third quarter. The conglomerate finished the quarter with a record $157.2 billion in cash and equivalents, up from $147.4 billion a year earlier.
Analysts forecast 23% full-year earnings growth in 2023 and a modest 2% increase in 2024.
Although BRKB has a lower-than-ideal 76 IBD Composite Rating, its quarterly earnings growth improved considerably to 43% from 14% and 8% gains the previous two quarters. Berkshire’s revenue grew a consistent 21% for the last three quarters.
S&P 500 Stock Netflix In Buy Zone
Netflix (NFLX) is in the 5% buy zone from a 482.70 handle buy point after breaking out on Monday.
The stock gapped up more than 16% following the company’s beat on its third-quarter earnings and in-line sales Oct. 18. Investor excitement came from the much higher-than-expected new subscriber numbers, but its current-quarter revenue guidance lagged analysts’ estimates.
The streaming entertainment stock regained its 50-day line following the report, then extended a climb to the top of the base in late November.
Its quarterly earnings growth greatly improved from an 18% decline to an increase of 3% to 20% in the most recent quarter. Its 8% sales growth improved from 4% and 3% gains the previous two periods. Analysts project 23% full-year profit growth and 30% in 2024.
The stock holds 93 IBD Composite and Earnings Per Share Ratings.
S&P 500 Leader GOOGL Hits New High
Alphabet (GOOGL) is trying to break out of a cup-with-handle base with a 139.42 buy point.
Shares have steadily climbed after a steep post-earnings sell-off in huge volume on Oct. 25. The search engine, cloud computing and artificial intelligence company reported higher-than-expected third-quarter earnings and sales on Oct. 24. Google uses AI in its Google Bard conversational tool.
The dark cloud came from the miss on its cloud-computing revenue estimates. Analysts were expecting $8.64 billion while Alphabet delivered $8.41 billion. Operating income also disappointed. But a bright spot was its 12% increase in YouTube ad revenue to $7.95 billion. Analysts had estimated $7.82 billion.
Meanwhile, Q3 gross sales grew 11% — an improvement from the 3% and 7% gains the two previous quarters. Full-year earnings are expected to grow 22%, then slow to 17% in 2024.
GOOGL holds the fourth spot out of 87 stocks in the internet content industry group. The group holds a mediocre 87th spot out of 197 IBD industry groups.
Dexcom Among S&P 500 Growth Leaders
Dexcom (DXCM) is in a cup base with a 139.55 buy point, which is also its 52-week high. The medical device stock climbed sharply off its 52-week low of 74.75 set on Oct. 13, and reclaimed its 50- and 200-day lines on the way up.
Dexcom took off after the glucose monitoring systems maker reported higher-than-expected third-quarter adjusted earnings and sales on Oct. 26. The company also raised its full-year 2023 revenue and margin guidance and announced a $500 million share-repurchase program in the report.
Its quarterly earnings growth remained robust at 79% but slowed from 113% and 100% in the prior two quarters. Meanwhile, Q3 sales growth accelerated to 27%, from 25% and 18%.
Analysts forecast Dexcom’s profit to grow 64% in 2023 and 20% in 2024. The stock has a 98 IBD EPS Rating and an encouraging 1.9 up/down volume ratio.
These S&P 500 stocks to buy and watch are worth a deeper look as you build look for names to add to your portfolio.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
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