Eli Lilly and Albemarle stock lead this weekend's watch list of stocks that have shown resilience amid the sell-off and may be poised to lead the way forward if market conditions improve. Along with LLY stock and ALB, Dollar Tree, Cigna and World Wrestling Entertainment round out the list of stocks that offer both some potential upside and some shelter from today's economic risks.
All of the stocks have rising relative strength lines, which shows they are beating the S&P 500. To some extent, all of the stocks but Eli Lilly have underperformed expectations for some time, but now appear to be raising their games.
The fledgling rally that began with Thursday's rally off lows and Friday's strong advance still has to prove itself with a follow-through day. Yet even if it does, investors probably won't want to throw caution to the wind. The latest CPI inflation data underscored that the Federal Reserve still has its work cut out for it to dampen demand enough without suffocating economic growth.
In other words, don't expect a flip of the switch that reignites fallen favorites, whose charts are so damaged as to lack clear entry points. There's a good chance that the qualities that have supported this weekend's watch list of stocks will continue to be in demand.
Eli Lilly has earned a spot in the flagship IBD 50 list of stocks, as well as the IBD Leaderboard portfolio. WWE stock and DLTR recently joined the Leaderboard watch list.
Eli Lilly Stock
Eli Lilly, which was IBD Stock Of The Day on Wednesday, has been setting up since it easily beat Q1 estimates on April 28. However, the big news that day was release of Phase 3 data for its tirzepatide obesity drug, showing patients lost 16%-22.5% of their body weight, depending on dosage size.
Following earnings, Wells Fargo analyst Mohit Bansal hiked its LLY stock price target to 305 from 280, with an equal weight rating. The analyst said he expects 11% sales growth and 21% EPS growth from 2022-2027, putting Eli Lilly in the top tier of biopharma companies.
On Friday, LLY stock closed off fractionally at 291.63, just above its 50-day line. Eli Lilly didn't take part in Friday's big market rebound, led by beaten-down techs. But as a defensive growth name, LLY stock has held up in the past few weeks despite a massive market sell-off.
Eli Lilly stock has a 314.10 buy point from a flat base within a base-on-base pattern. However, a solid move above the 50-day line that breaks the down-sloping trendline from its April 7 high would be actionable.
Albemarle Stock
Albemarle sold off hard after issuing disappointing earnings guidance on Feb. 16, despite surging lithium prices. Investors seemed to grow impatient over higher costs, output constraints and contracts locked in at prices that were far below market levels.
But Albemarle's righted the ship with its Q1 earnings blowout on May 4, thanks to renegotiated contracts. Albemarle hiked its 2022 EPS target to $9.25-$12.25 from $5.65-$6.65 previously.
While other metals prices are coming down amid a more muted economic outlook, lithium pricing looks like more of a sure thing, amid a projected long-term undersupply.
On Friday, ALB stock jumped 7.2% to 228.82. The past two sessions have seen ALB stock bounce from its 50-day line and retake its 200-day moving average.
Clearing the May 5 high of 243.18 could provide a speculative entry point, as a de facto that's too low to be valid. A break above 248, where ALB stock has twice stalled out, including right before its disappointing Q4 report, would offer a clearer green light.
Dollar Tree Stock
Dollar Tree is a defensive retail play well-suited to handle the current slowing, high-inflation economy. It's also been successful at managing cost pressures, executing its plan to hike the price of many items to $1.25.
However, DLTR stock had been a long-term underperformer until very recently, which was mostly attributed to its acquisition of Family Dollar.
But investors appear to be gaining confidence in Dollar Tree's outlook after the company reorganized its board in March, naming former Dollar General CEO Rick Dreiling as executive chair. Following the move, Loop Capital analyst Anthony Chukumba upgraded DLTR stock to buy from hold, boosting his target to 200 from 140. He wrote that Dreiling will "dust off the Dollar General playbook." at Family Dollar.
DLTR stock broke out and rallied about 18% on the move, but has since pulled back to its 50-day line. A strong bounce above the 50-day, breaking above the down-sloping trend line, would be actionable. Dollar Tree stock could have a flat base in another week.
Cigna Stock
Cigna stock only belatedly joined this year's rally among managed-care stocks. The group has done well amid lower Covid costs and health costs, in general.
However, Cigna has been a long-term underperformer since its acquisition of Express Scripts, a prescription benefit management company.
But now Wall Street is starting to see value. A surge in the biosimilar market that's expected to pick up next year looks like a tailwind. Shrinking Medicaid rolls could hurt other insurers as the pandemic emergency ends, but Cigna could benefit through its commercial focus.
Cigna stock has been carving out a yearlong cup-with-handle pattern and now sits about 4% below a 270.07 buy point.
WWE Stock
In early April, World Wrestling Entertainment announced that WrestleMania 38 was its highest-grossing and most-attended event in company history, with 156,352 visiting AT&T Stadium in Dallas over two days.
The return of live events offers some protection against a softening consumer. Following better-than-expected Q1 results on May 5, Benchmark analyst Mike Hickey said "now is the time to buy" WWE stock. He predicted that its content will attract multiple new bidders next year for deals that will take effect in 2024.
WWE stock rose 1.6% to 58.25 on Friday. The stock is 9% below a 63.81 buy point after finding support at its 200-day line last week. However, a strong move past its 50-day line, and break of the trend line, would offer an earlier entry point.
WWE stock's flat base is next to several failed bases, but its relative strength line has improved to an 11-month high.
