It’s been a tough year for many of the best tech stocks to buy and watch, hurt in part by rising interest rates and an increasingly hawkish Federal Reserve. But a handful of the best tech stocks are holding up well as the stock market tries to bottom.

X

Interest rates have been dropping, but they haven’t been dropping due to lower inflation expectations; instead, they’ve been falling in anticipation of a sharp slowdown for the economy next year.

That’s made it an extremely challenging environment for many of the best stocks to buy and watch.

Stocks with high P-E ratios like Tesla (TSLA) and Nvidia (NVDA) have been hit hard by institutional selling this year, along with security software stocks like CrowdStrike (CRWD) and Zscaler (ZS).

A rising interest rate environment isn’t good for the best stocks to buy in the tech sector with high multiples. Why? Because it makes for a more challenging operating environment. If the stock market senses any possibility of a slowdown in earnings growth from high P-E names, the selling will hit these stocks first.

But the Nasdaq composite and S&P 500 showed bullish price and volume action on Oct. 21, closing out the week with big percentage gains in higher volume. Both indexes confirmed a new uptrend on Day 7 of their rally attempts.

Now the debate starts as to whether or not it will be a tradable rally or the start of a new bull market.

Top Traits Of Best Stocks To Buy

The best stocks to buy and watch aren’t hard to find, as long as you’re fishing in the right pond. Top stocks like Iridium Communications (IRDM) and Medpace (MEDP) don’t get a lot of attention, but both have characteristics seen in past stock market winners before big price moves.

The best stocks to buy and watch boast strong fundamentals along with leading price performance in their industry group. Many also show favorable fund ownership trends.

The best tech stocks also tend to show resilience in down markets. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.


Join IBD experts as they analyze leading stocks in the stock market rally on IBD Live


Screening for the best tech stocks to buy and watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.

The best tech stocks to buy and watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.

The best tech stocks to buy and watch now include Impinj (PI), Iridium Communications, Super Micro Computer (SMCI), Medpace and Insulet (PODD).

With the stock market fluctuating, and fresh signs of distribution in the major stock indexes, new buys will most likely have a hard time making meaningful headway. But when new institutional money starts to come in from the sidelines, the best stocks to buy and watch could easily resume their market leadership, helped in part by strong fundamentals.

Best Stocks To Buy: Impinj

Impinj is a dominate chip provider for the Internet of Things (IoT).

The company makes tracking chips that can connect items to the internet cloud for customers in retail, transportation, logistics and other industries. It uses a wireless technology called Rain RFID.

Impinj delivered an impressive earnings report in late October. Shares gapped up on Oct. 27 and PI has been showing strength and support since then. A bounce off the 10-week moving average, currently around 112, would put the stock in an alternate buy zone.

Q3 revenue growth accelerated sharply from Q2, up 51% to $68.3 million.

“Our third-quarter results were strong, with both endpoint IC (integrated circuits) and reader IC revenue setting new quarterly records,” CEO Chris Diorio said in the earnings release. “We entered the fourth quarter with record backlog and I expect demand to remain strong well into 2023.”

For Q4, Impinj forecast adjusted earnings of 35 cents a share on sales of $72.5 million. That’s based on the midpoint of its outlook. Analysts had been looking for earnings of 18 cents a share on sales of $67.2 million.

Annual earnings estimate are also strong. For 2022, full-year profit is expected to soar 260% from 2021. In 2023, profit is expected to rise 40%. Estimates have been heading higher.

Composite Rating:  94 (on 1-99 scale with 99 tops)

Latest-quarter EPS: 34 cents vs. year-ago loss of 4 cents

Latest-quarter sales % change: 51%

Five-year EPS growth rate: n/a

Annual return on equity: 13%

Up/down volume ratio: 2.0

MEDP Stock

Medpace, also in a group of best stocks to buy and watch, is a provider of clinical research-based drug and medical device development services. As a contract research organization, a big part of its business is managing clinical trials for big drug companies.

The company’s earnings report on Oct. 24 turned a lot of heads, to say the least. Shares gapped up and soared 37% after the company reported stronger than expected Q3 earnings and revenue. It also guided full-year earnings and revenue above expectations. It also raised its full-year revenue guidance for 2023 to a range of $1.68 billion to $1.74 billion, above the consensus estimate at the time of $1.5 billion.

Medpace, another one of the best stocks to buy and watch, had been holding gains well after its bullish earnings gap. A test of the 10-week line is going well so far.

Composite Rating: 96

Latest-quarter EPS % change: +59%

Latest-quarter sales % change: 30%

Five-year annualized EPS growth rate: 32%

Annual return on equity: 21%

Up/down volume: 1.8

SMCI Stock

Super Micro Computer reported huge earnings on Nov. 2, fueling a gap out of a cup base. Studies of the best stocks to buy and watch after bullish moves like this can present alternate entries, and there could be one soon in SMCI as the stock tests support at the 10-week line. A bounce off the support level, just below 81, would put the stock in an alternate buy zone.

The company makes server and storage systems for data centers, cloud computing and artificial intelligence.

Fiscal first-quarter revenue jumped 79% to $1.85 billion, marking the seventh straight quarter of accelerating revenue growth.

Guidance for the current quarter was also bullish. The company forecast Q2 revenue of $1.7 billion to $1.8 billion, well above the $1.5 billion analysts’ consensus. It sees adjusted profit of $2.64 to $2.90 a share, also handily above the $1.91 consensus.


See Which Stocks Are In The Leaderboard Portfolio


Composite Rating: 99

Latest-quarter EPS % change: +490%

Latest-quarter sales % change: 79%

Five-year annualized EPS growth rate: 38%

Annual return on equity: 25%

Up/down volume ratio: 1.9

IRDM Stock

Iridium blasted out of a lengthy consolidation in early October. It’s now forming a flat base with a 53.71 entry, but IRDM’s 10-week line has turned into a resistance level.

The company is a provider of mobile voice and data communication services. Iridium is set to report its first-ever annual profit this year, with growth seen surging in 2023, up 167%.

IRDM stock came down to its 50-day moving average on Oct. 20  after reporting earnings, but it didn’t take long for IRDM to find support.

Revenue increased 14% to $184.1 million, Service revenue, which represents primarily recurring revenue from Iridium’s growing subscriber base, contributed 76% of total revenue in the quarter.

Inside the earnings release, CEO Matt Desch said, “We have continued to see strong momentum across all commercial business lines. Based upon these trends we are increasing our full-year outlook for service revenue growth and EBITDA, and we expect 2022 will be another record year.”

A couple of analysts chimed in with comments after the results. Raymond James maintained a strong buy rating and lifted IRDM’s price target to 60. Morgan Stanley, meanwhile, maintained an overweight rating and raised IRDM’s price target to 66.

Composite Rating: 77

Latest-quarter EPS: 2 cents vs. a loss of 2 cents

Latest-quarter sales % change: +14%

Five-year EPS growth rate:  n/a

Annual return on equity: n/a

Up/down volume ratio: 1.4

PODD Stock

Diabetes stock Insulet has the potential to be a stock market leader as it moves sideways after a bullish breakout during the week ended Nov. 4. It’s currently forming a flat base as PODD holds above its 10-week line.


Why This IBD Tool Simplifies The Search For Top Stocks


The company’s Omnipod System is a continuous insulin delivery system for people with insulin-dependent diabetes.

PODD gapped up powerfully on Nov. 4 after the company reported a 150% surge in quarterly profit. Revenue increased 24% to $340.8 million.

“Our third quarter accomplishments demonstrate the continued execution and commitment of the entire Insulet team,” CEO Jim Hollingshead said in the earnings release. “Omnipod 5 U.S. adoption is exceeding our expectations and proving to be the game-changer we knew it would be. We are thrilled to have received CE Mark approval to bring Omnipod 5 to international markets and to have expanded Omnipod 5’s indication down to age two. We expect to deliver another year of strong growth and operational progress and enter 2023 with significant momentum across our business.”

The company ended the quarter with cash and cash equivalents of $722 million.

Composite Rating: 90

Latest-quarter EPS % change: +150%

Latest-quarter sales % change: 24%

Three-year annualized EPS growth rate: n/a

Annual return on equity: 3%

Up/down volume ratio: 1.0

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.

YOU MIGHT ALSO LIKE:

Join IBD Live For Stock Ideas Each Morning Before The Open

Best Growth Stocks To Buy And Watch: See Updates To IBD Stock Lists

Stay In Sync With The Market With IBD’s ETF Market Strategy

Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest

LEAVE A REPLY

Please enter your comment!
Please enter your name here