Exxon Mobil and chip-design software stalwart Synopsys lead this weekend's watch list of five stocks near buy points that just weathered the worst month for the S&P 500 this year. Along with XOM stock and SNPS, which is seen as a big beneficiary of generative AI, the list includes Costco Wholesale, language learning app Duolingo and supplemental insurance leader Aflac.
DUOL and SNPS stock are both part of the flagship IBD 50 list of leading growth stocks. Synopsys also is part of the Long Term Leaders list of stocks with reliable earnings growth that can make them good candidates to buy on a pullback.
S&P 500 Set-Up
Keep in mind, that current market conditions mean you should mainly, if not entirely, be on the sidelines, waiting for an opening if the S&P 500 can find its footing.
The S&P 500 failed to hold an early advance on Friday after the Fed's key measure of core inflation came in even lower than expected. A rebound in the 10-year Treasury yield helped take the wind out of stocks, along with government shutdown fears.
The S&P 500 finished September down 4.9% on the month, the worst performance since December. The S&P 500 closed 6.6% below its rally high hit on July 31, though it remains up 19.9% from Oct. 12, the bear market bottom.
Be sure to read IBD's The Big Picture every day to stay in sync with the market direction and what it means for your trading decisions.
XOM Stock
Exxon Mobil stock easily outperformed the S&P 500 last month, climbing 5.75%, as crude oil prices crested $90 a barrel.
On Sept. 5, Saudi Arabia and Russia extended their voluntary production cuts of a combined 1.3 million barrels per day through the end of the year. That would support oil prices if an economic slowdown hurts demand, but so far it is mainly exacerbating tight supply.
Higher energy prices aren't the only reason Exxon Mobil stock is performing well. With its Q2 results on July 28, the company said it's on track to cut $9 billion in costs by year end compared to 2019 levels. As a result, Q2 profits were double what they would have been five years ago under similar commodity pricing.
XOM stock slipped 1.6% to 117.58 on Friday, edging below a 118.84 buy point from a 21-week cup-with-handle base, according to MarketSmith. XOM stock first cleared the buy point on Wednesday, with a 3.3% rally on above-average volume.
Exxon and other energy stocks pared weekly gains on Friday as crude oil prices backed off fresh 2023 highs.
SNPS Stock
Synopsys was among the AI stocks to take flight on May 25 with Nvidia's massive boost to its sales guidance amid surging excitement over generative AI. For electronic design automation firms like SNPS, incorporating generative AI as a major productivity breakthrough for users is expanding their profit potential.
On Aug. 17, KeyBanc analyst Jason Celino raised his price target on SNPS stock to 515 from 500, keeping an overweight rating. The firm's fiscal Q3 earnings report provided proof that the AI opportunity is already showing an impact.
"We achieved another record quarter as semi design starts and R&D investments continue, unabated, to capitalize on the AI-drive 'Smart Everything Era,'" CEO Aart de Geus said.
On Thursday, SNPS stock bolted 3.1%, springing above its 50-day moving average and breaking a down-sloping trendline from its Sept. 6 high of 471.15. SNPS cleared a 471.15 buy point on Friday, touching a new record high, but closed off 0.4% at 458.97.
COST Stock
Costco is perched just below a buy point after rallying 1.9% on Wednesday, following its fiscal Q4 earnings report. COST gapped lower at Wednesday's open but finished higher as Wall Street reassessed the results.
Analysts noted that some investors may have been hoping for the first membership-fee increase in six years. Further, Costco noted softness in big-ticket purchases. Yet club members are making more trips, highlighting Costco's defensive nature in a consumer slowdown.
COST stock slipped 0.65% to 564.96 on Friday, ending 1% below a 571.16 flat-base buy point. The 7%-deep flat base is right next to the top of a longer consolidation.
DUOL Stock
Duolingo stock caught fire on Friday on no apparent news, surging 4.2% to clear 165.87. DUOL stock darted as high as 174.70, but finished just below a 167.35 handle buy point from a double-bottom base.
DUOL stock's relative strength line, the blue line in IBD charts that tracks its progress vs. the S&P 500, is right near a 52-week high.
Duolingo, featured as IBD Stock Of The Day on Sept. 19, turned profitable in Q2 as it notched a fourth-straight quarter with revenue growth above 40%. Paid subscribers jumped 59% to 5.2 million. Duolingo's monthly users rose 50% to 74.1 million, while daily active users climbed 62% to 21.4 million. That gives the company a big base of users to convert to paid services.
"We're at the start of monetizing our user based and monetizing a very large market," CEO Luis von Ahn said on the Aug. 8 earnings call.
He said the company is using generative AI for the higher-tier subscription it's testing with features such as Roleplay, which allows users to practice conversation.
AFL Stock
Aflac stock dipped 1.2% to 76.75 on Friday, but it has continued to find support at its 21-day exponential moving average. AFL stock has a 78.43 buy point from an 8-week flat base, with 78 a slightly early entry.
Analysts see Aflac nearing a turning point, where year-over-year revenue growth will turn positive. The company recently launched a cancer insurance policy in Japan. In the U.S., growth is focused on newer dental and vision, group life and disability offerings.
