My father gave me some simple advice on how to find the best stocks to buy in any market.
“The easiest way to find strong stocks is to look at the new highs list.”
My father taught me this business and I worked alongside him for 18 years before he retired in 2004. The words are not particularly original and not particularly complicated, but they’re absolutely true. And I’ve remembered them because they’re so valuable.
So while the market was working through a normal correction in recent weeks and the media were giving you headlines like these:
Worst Decline Since October
Biggest Losing Streak Since 2011
I was watching the new highs list, knowing that when the sellers eased up, as they did last week, the stocks that broke out to new highs first would be the ones most likely to lead the market higher.
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And the cool thing about watching these lists of new highs just as the correction was ending was that the list is still quite small, and thus easy to comb through.
That’s how I spent some of my time last week, identifying the leaders of the market’s next advance. So today I want to share with you five of the stocks I found, stocks that every growth-oriented investor should be aware of. These are five of the best stocks to buy right now:
Best Stocks to Buy #1: China Lodging Group (HTHT)
It doesn’t take a rocket scientist to understand that the growing middle class in China is going to demand more and better hotel rooms for years to come.
China Lodging Group is the largest operator of hotel rooms in China, with roughly 2,770 hotels in operation and more than 700 in development. Some of these hotels are leased and some are franchised but the majority are “manachised,” meaning the company installs onsite managers who work with the franchisees.
The company’s brands include Joya Hotel, Manxin Hotels & Resorts, JI Hotel, Starway Hotel, Elan Hotel, HanTing Hotel and Hi Inn.
In the latest quarter, revenues were up 4% from the year before to $240 million, while earnings were flat, at $0.20 per share. But that was a rare slow quarter and investors are clearly looking ahead.
Which is why the chart looks great; in fact you can see the effect of the earnings report on March 14.
And if you’re worried that buying a Chinese stock is risky, don’t be. HTHT is actually an American Depositary Receipt (ADR), so it meets fairly strict reporting requirements, and trades just like any U.S. stock.
Note: HTHT was first recommended by Paul Goodwin of Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) in March 2016. Just a couple days later, I echoed Paul’s recommendation by adding the stock to the portfolio of Cabot Stock of the Week. A year later, investors who followed our advice are looking at profits of roughly 70%.
You can join them by clicking here.
Best Stocks to Buy #2. Grand Canyon Education (LOPE)
Six years ago, Barack Obama’s administration came down hard on for-profit education companies that had used aggressive marketing tactics to attract students—along with the federal loans that paid their tuitions—who were unlikely to succeed in college. The result was bankruptcy for publicly traded Corinthian Colleges and ITT, as well as a slew of smaller private schools. But now, with that competition out of the way, and a pro-business president and Secretary of Education in place, the tide has turned; investors are much more optimistic about for-profit education stocks.
Grand Canyon Education is the parent company of Grand Canyon University, a private Christian university that’s been operating in Phoenix, Arizona since 1949. Expertly managed, the school has grown both revenues and earnings every year of the past decade. At the end of 2016, the school had 17,262 students on campus, up 13.6% from the year before and 64,646 students online, up 9% from the year before.
In the latest quarter revenues grew 13% to $245 million, while earnings grew 25% to $1.01 per share. Analysts are looking for earnings growth of 9% in both 2017 and 2018.
As to the chart, after rebounding from the industry lows of 2011, the stock basically built a long loose base from 2013 through 2016. Last year’s election saw the stock blast off from that base and settle into a new tight base between 57 and 61. And the February earnings report kicked off the advance that persists to this day.
Note: LOPE was originally recommended by Cabot Top Ten Trader back in early January, in the midst of that tight new base. Investors who got on board then are now looking at profits of about 22%, not bad for less than three months.
To learn how you can join them, and get recommendations about the market’s ten strongest stocks every Monday, click here.
Best Stocks to Buy #3. Lumentum (LITE)
Over the decades, I’ve seen oodles of high-tech stocks thrive in strong bull markets; if your timing is right, they can be very profitable. For my money, Lumentum is the odds-on favorite in the current market.
Lumentum was spun off from Viavi Solutions (formerly known as JDS Uniphase) in late 2015. The firm’s bread-and butter (85% of revenues) is optical networking hardware; demand is booming for its new 100G transceivers that serve hyperscale data centers. But there’s also great potential in Lumentum’s industrial laser business, especially the division working on 3D sensing. The new iPhone is rumored to include it, and it should eventually make its way into self-driving cars—a huge market.
In the latest quarter, Lumentum reported revenues of $265 million, up 21%, while earnings hit $0.57 per share, up 73%!
As to the chart, the trend has been up since its late 2015 IPO—but volatility has been high.
Aggressive investors with experience playing stocks like this are welcome to try their luck, but a better plan is to become a regular reader of Mike Cintolo, who originally recommended the stock in Cabot Growth Investor.
To learn how you can join them, click here.
Best Stocks to Buy #4. Royal Caribbean Cruises (RCL)
On the lower risk end of the spectrum (among these five stocks) is Royal Caribbean Cruises, one of several big cruise line stocks hitting new highs. Royal Caribbean isn’t the biggest player in the industry, but it’s growing faster, so its stock tends to do better in bull markets.
The real story here, however, is the combination of growth and value—the forward P/E ratio is only 14—and the 1.9% dividend.
RCL was originally recommended by Crista Huff of Cabot Undervalued Stocks Advisor. In her latest update, Crista wrote, “Future earnings estimates have been rising all year, with EPS now expected to grow 16.0% and 14.2% in 2017 and 2018 (December year-end). The stock is undervalued, and the price chart is bullish, with short-term upside price resistance at 102.”
Crista’s readers have a profit of 8% in the stock and they’re holding on for more. To join them, and get many more recommendations of undervalued growth stocks, click here.
Best Stocks to Buy #5: Shopify (SHOP)
Software companies have long been a special breed; because they have no physical inventory, profit margins can be very high, and growth can be very fast. And now we have software companies that operate in the cloud, where everything, at least from the user’s perspective, is virtual (though in fact hardware from companies like Lumentum plays a key part.)
Shopify is a Canadian company that provides a cloud-based e-commerce platform that allows small firms to do business through a variety of channels online, facilitates payments, ties into all the hottest social media platforms, and allows the critical back-end functions that a growing company needs. Shopify is serving a very large market—there are probably 30 million businesses with fewer than 500 employees in the U.S. alone, nearly all of which could use Shopify’s help. And many are signing up! The company had more than 375,000 clients at year-end, up 50,000 from the quarter before. Recurring revenue from monthly fees was up 63% in the fourth quarter and gross merchandise volume sold through Shopify’s platform was up 95%. Earnings are hovering around breakeven as the company invests in its product and grabs as many clients as it can. But when earnings start ramping up (probably this year), they should be very impressive.
The stock came public in May of 2015, and has been climbing strongly since early mid-2016.
Note: Mike Cintolo originally recommended the stock in Cabot Top Ten Trader back in February, and readers who followed his advice are looking at profits nearing 20%. It’s a good start!
To join Mike’s readers, and get 10 detailed recommendations of high-potential growth stocks every Monday, click here.
The sooner you start, the better.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More