When it comes to investing and picking stocks, I take a three step approach.
First, the fundamentals — the numbers and long-term growth prospects have to check out and warrant the present valuation. Second, the optics — there has to be some behavioral reason out there why investors will want to buy this stock over the next several months and years. And third, the technicals — the chart has to make sense and support the bull thesis.
In this gallery, we will focus on that third component, the technicals. I have selected a group of high-quality stocks which check off the first two boxes and hit a home run on the third box, meaning that they all have really good charts which support the bull thesis.
Without further ado, let’s take a look at a list of seven stocks to buy with great charts, and favorable fundamentals and optics, too.
Stocks to Buy With Great Charts: Facebook (FB)
The chart for Facebook (NASDAQ:FB) stock has looked good all year long.
After a secular decline in 2018, FB stock put in a bottom in December 2018. Since then, the stock has formed a nice uptrend over the past eight months, with a strong, upward sloping support line that has tested and held three times before — each time when the stock’s relative strength index tumbled towards oversold territory.
We have a similar setup today. Facebook stock’s RSI is tumbling towards oversold territory, and the stock is testing this multi-quarter support line. It appears like FB wants to hold this support line yet again, and if so, a big bounce could be just around the corner.
The 2019 recovery in technicals for FB stock has been mirrored by a recovery in its fundamentals and optics. The fundamentals for FB stock have been rock solid all year long. User growth has remained steady. Revenue growth has remained robust. Margins are starting to rebound now that big data security investments are being phased out. Profit growth is coming back into the picture.
Meanwhile, the optics have been similarly good all year long. Investors (and consumers) are forgetting or have already forgotten about the Cambridge Analytica scandal. This controversy moving into the rear-view mirror has lifted investor sentiment, which has helped push the stock higher over the past eight months.
The fundamentals, optics and technicals all project to remain favorable for the foreseeable future. As such, the 2019 uptrend in FB stock is set to persist into the end of the year.
The chart on AT&T (NYSE:T) looks so good because this stock appears to be in the early stages of a technical breakout. The 20-day moving average has surged above the 50-day moving average. Both of those moving averages have surged above the 200-day moving average. All three of those moving averages are sloping upward (albeit only slightly on the 200-day).
The last time these three things happened (20-day above 50-day, both above 200-day and all three with a positive slope) was back in early 2016. T stock essentially proceeded to rally from under $35 to nearly $45 in 2016.
Further, the stock has formed a very strong, upward sloping support line since putting in a 52-week low during the late 2018 selloff.
The fundamental bull thesis lines up with the technicals here. AT&T is a telecom giant which has struggled with wireless pricing competition and wired cord-cutting over the past several years. But, in 2020, those headwinds should be replaced by tailwinds. Specifically, the wireless business will get a big boost from the 5G boom, while cord-cutting headwinds should be offset by streaming growth through the 2020 launch of content-packed HBO Max.
As such, the fundamental bull thesis on T stock looks equally good as the chart at this moment in time.
The chart for Chegg (NYSE:CHGG) looks good simply because the stock has been so strong for so long, even amid massive market turbulence over the past year.
The secular uptrend in CHGG stock really started in early 2017. Ever since, CHGG stock has been up over 400%. More impressively, the stock hasn’t had many major drawdowns during that stretch. Since 2017, the stock has tested its 200-day moving average only once — during the late 2018 selloff when the markets briefly entered a bear market. Outside of that, CHGG stock has been on a solid, straight-line uptrend since early 2017.
The fundamentals supporting CHGG stock are so good, that it’s no wonder why the stock has been on such a winning trajectory. Chegg has created a digital education platform which high school and college students everywhere don’t just want, but need in today’s internet-dominated world (and they are willing to pay for it). As such, Chegg’s subscribers have grown at a roughly 40% clip over the past several years, while revenues have grown at a nearly 45% clip. Pretty much all of that revenue is subscription-based, so it’s annually recurring, and it’s also very high margin.
Chegg is really just getting started on its high-growth, high-margin growth narrative. Chegg only has around 3 million subscribers. There are over 35 million high school and college students in the United States alone. Consequently, the company’s revenues and profits will continue to trend significantly higher over the next several years. As they do, CHGG stock will stay on this long-term winning trajectory.
Under Armour (UAA)
The chart on Under Armour (NYSE:UAA) looks good here because its technicals are showing that you have a way oversold stock due for a big reflex rally.
Long story short, the relative strength index on UAA stock has dropped to 20, which is well into oversold territory, while the price is now testing a long-term support line. The last time this combination happened (oversold RSI with test of long-term support line) was back in late 2018. The stock proceeded to bottom and then rally more than 20% over the following month.
The fundamentals here also support the idea the UAA stock is due for a bounce-back. The big drop in Under Armour stock is due to two things. First, the company reported underwhelming earnings at the end of July. Second, the U.S. has threatened to impose new tariffs on China.
But, those underwhelming earnings are now fully priced into UAA stock, and one could very reasonably argue that the stock is now undervalued relative to its long-term growth prospects. At the same time, the U.S. tariff threat seems more like a chest puff than anything else — given that many of the tariffs have actually been delayed — so trade tensions should de-escalate over the next few months.
Consequently, the fundamentals and optics here imply that UAA stock will reverse course soon.
The Trade Desk (TTD)
The chart for The Trade Desk (NASDAQ:TTD) looks good mostly because you have a long-term winning stock which has a well-defined and strongly upward-sloping support line. And the stock is getting ready to test that support line soon — implying that a bounce could be around the corner.
Specifically, ever since early summer 2018, TTD stock has essentially tripled, and in so doing, has only tested its 200-day moving average once. Further, in 2019, The Trade Desk stock has established a strong, upward-sloping support line which has held four times over the past nine months. TTD is gearing up to test this support line again amid broader market weakness. If the stock holds this support, a big bounce could be around the corner.
Much like Chegg, it’s no wonder that TTD stock has such a great chart, given that the fundamentals underlying TTD are equally robust.
The Trade Desk is the leader in the programmatic advertising world. Programmatic advertising is the future of advertising. It is essentially the convergence of the automation and data-driven trends into the ad world, wherein computers and data-driven algorithms programmatically allocate and spend.
Right now, only a small slice of the global ad spend pie is transacted programmatically. Eventually, given that data and automation are the future, pretty much every ad dollar around the world will be transacted programmatically. Thus, as the ad world pivots into programmatic advertising, The Trade Desk will benefit from robust ad spending and revenue growth. Margins will improve with scale, and profit growth will be doubly robust.
Net net, then, The Trade Desk is supported by secular growth drivers which ultimately imply that TTD stock will run higher long term.
The chart on Wayfair (NYSE:W) looks good because you have a long-term winning growth stock that has a history of both sharp selloffs, and sharp rebounds from those selloffs. W stock is currently in the midst of one of those selloffs, and is technically positioned for a big rebound rally.
Specifically, the relative strength index on Wayfair stock has recently plunged to just over 20 — well into oversold territory. Wayfair’s RSI has taken a deep dive into oversold territory three times before since January 2018. Each time, the stock bottomed shortly after the RSI entered oversold territory, and proceeded to stage a huge comeback rally over the subsequent few weeks or months.
The company’s fundamentals support the technicals here in saying that Wayfair stock is due for a big recovery rally.
Wayfair stock has been killed over the past few months because of a few things, including poor macroeconomic conditions, a bad third-quarter guide and a convertible note offering. All of this is really just noise. For all intents and purposes, Wayfair is a consumer-driven growth company, and the consumer globally remains fairly healthy, especially in the U.S. Just look at this red hot July retail sales report.
Secular tailwinds in the e-commerce space remain healthy, and lower rates globally should promote more big ticket purchases — like home and home furnishing purchases.
Net net, the core fundamentals here remain solid. As such, once near-term macro noise passes, W stock should bounce back from today’s oversold levels.
There is no such thing as a “perfect” chart. But, the chart for Adobe (NASDAQ:ADBE) comes pretty close. Ever since 2012 — when Adobe pivoted into a cloud, software as a service model — ADBE stock has taken off and has not looked back. Every few months, the stock will test its 200-day moving average. Every time, the stock largely holds that level. And, every time, the stock bounces back and moves higher, and the 200-day moving average moves higher too.
In other words, this stock has been on a seemingly unstoppable uptrend over the past seven years.
Adobe checks off every box you’d want a growth stock to check off.
Big revenue growth? Check — 20%-plus revenue growth in each of the past several quarters. Secular demand drivers? Check. The world is becoming more visually obsessed, and as it does, consumers and enterprises alike are increasingly using Adobe’s visually-focused solutions. Limited competition? Check. Adobe has so little competition in the creative solutions space that the average Joe would be hard-pressed to name an Adobe alternative. Big margins? Check. Adobe’s subscription business runs at 90%-plus gross margins. Revenue visibility? Check. Adobe collects about 90% of its revenue form annually recurring subscriptions.
So long as Adobe continues to check off all those boxes — and the global economy staves off a recession — ADBE stock should continue to trend higher.
As of this writing, Luke Lango was long FB, T, CHGG, UAA, TTD, and ADBE.
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