Broadcom and CVS stock lead this weekend's watch list of five stocks showing relative strength and near early entry points. That means investors won't have to wait until the young stock market rally grows long in the tooth. The list includes Arista Networks, Old Dominion Freight Line and Builders FirstSource.
Their diversity reflects the broad-based nature of the rally. That's an encouraging sign, because the path of market interest rates may have varying affects on different industry groups. The rally is built on optimism that the Fed will be able to hike rates just enough to tame inflation, without derailing economic growth.
The IBD Leaderboard portfolio of elite stocks just added Arista Networks, while ODFL stock is on the Leaderboard watchlist. SwingTrader established positions in both ANET stock and CVS Health as they moved past their 50-day lines. BLDR stock, Arista and Broadcom are on the flagship IBD 50 list.
This week's watch list includes a couple of cyclical industry leaders in trucking stalwart Old Dominion and Builders FirstSource, the top provider of structural and value-added products for homebuilders.
Tech spending also is pretty cyclical, but not entirely. Productivity-enhancing investment in the digital transformation of business processes should have staying power. Arista Networks supplies major cloud players, as well as large corporate networks, whose spending upturn is still pretty recent and showing momentum. "We're in a period where the cloud titans are clearly investing," after a soft spell through 2019 and 2020, Arista CEO Jayshree Ullal said on the Feb. 14 earnings call.
As Broadcom's "connecting everything" motto suggests, its technology is too pervasive to fully dodge an economic slowdown. But it is seeing order visibility into 2023, according to Friday's IBD Stock Of The Day feature. Beyond wireless chips for the iPhone, its semiconductors power broadband communications, networking, storage and industrial applications. It also provides infrastructure software for mainframes, data centers and cybersecurity.
CVS Health is a defensive play, because people still need prescriptions filled in a downturn. It's also a bet that CVS can leverage its store base to deepen customer relationships and deliver low-cost care via in-store clinics.
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CVS Stock
CVS stock slipped 1.2% to 107.30 on Friday, but still rose 3.7% on the week, retaking its 50-day line. That move above the 50-day, which also saw CVS stock break above the down-sloping trendline from its Feb. 8 peak, still looks actionable.
Meanwhile, CVS stock, which has been carving out a flat base, is just 4% below a 111.35 buy point.
CVS stock pulled back after providing guidance for a slight year-over-year earnings decline on Feb. 9, amid a fading tailwind from Covid vaccines and tests. However, there are recent signs of a pickup in Covid cases from the latest variant and movement toward another booster shot.
Plus, the windfall from Covid sped up the company's deleveraging after its Aetna acquisition, allowing for stepped-up capital returns and M&A.
Like all of the stocks on this weekend's watch list, CVS stock's relative strength line, the blue line in the charts provided that tracks progress vs. the S&P 500, is right at a multiyear or all-time high. Those are often the kind of stocks that make sense to buy early in a rally.
Broadcom Stock
AVGO rose 1% to 608.60 in Friday's stock market action, capping off a 5.6% weekly gain. Broadcom is about 10% below an official buy point of 677.86, according to MarketSmith.
However, the chipmaker has climbed above its 50-day moving average, and a further move to 614.74, 10 cents above the Feb. 10 peak of its last rally attempt, would offer an early entry opportunity.
ANET Stock
Arista Networks popped 4.2% to 131.25 on Friday. That followed ANET stock's Thursday move to an early entry point, as it crested its 50-day line and closed right at a down-sloping trendline from its Dec. 27 peak.
ANET stock is now 6% above its 50-day line. That's still in range. However, investors seizing on a move past the 50-day line may want to scale back the size of new positions established as that gain approaches 10%.
ODFL Stock
Less-than-truckload freight leader Old Dominion rallied 1.7% to 328.30 on Friday, gaining 7.15% on the week. ODFL stock sprinted past its 50-day line on Wednesday. ODFL stock finished the week a hair below a 328.46 early entry point. That's 10 cents above the peak of its most recent move past the 50-day line.
Friday's gain also took ODFL stock just clear of the trend line from its Dec. 7 high, which aggressive investors could have used to establish a position.
J.B. Hunt Transport Services was Wednesday's IBD Stock Of The Day, as the full truckload hauler broke out amid a deal with Warren Buffett's BNSF Railway.
BLDR Stock
Builders FirstSource climbed 1.8% to 78.29 on Friday and 5.3% for the week. BLDR stock is actionable now on a move past its 50-day line and down-sloping trend line.
The next entry point is just 78.59, 10 cents above the March 3 peak of the last move past its 50-day.
BLDR is 9% below an official 86.58 buy point from an 11-week cup base.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
