BJ's Wholesale Club is today's IBD 50 Stocks To Watch pick as it reaches the buy point of a new base on improved fundamentals and with concerns about recession abating a bit for now.
BJ's, with a Relative Strength Rating of 95, ranks No. 1 in its eight-stock discount/variety retail group, according to Stock Checkup. Its Earnings Per Share Rating is also 95 out of a highest possible 99, while its Composite Rating glistens with a 98. The group itself ranks solid No. 32 out of IBD's 197 industry groups.
Stock To Watch Earnings
Earnings have risen an average 11.3% the past three quarters, with year-over-year EPS accelerating to 21% in the first quarter ended April 30 from 14% the prior quarter. Sales gains also are trending up, with gains of 6%, 14%, 10% and 16% the past four periods.
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For now, Wall Street analysts aren't as optimistic about future growth. They see Q2 earnings falling 6% and EPS for the full year slowing to 2% from an average 41% the past three years.
Technicals Look Good
Despite the less-than-pristine earnings outlook, BJ's remains a stock to watch as its technical picture glows. Along with its RS Rating of 95, the stock has a Relative Strength Line Blue Dot in its MarketSmith chart. Blue dots are placed over the end of RS lines that are pushing into new high ground as the stock nears a buy point. It's a hallmark of stocks to watch.
In this case, the buy point is 67 in a double-bottom with handle base. The base started Nov. 18, when BJ stock leapt nearly 20% to a peak of 74.08. From there, shares descended twice to their 200-day moving average. Then they rallied to 7i on April 8, setting what would eventually become the middle part of the double-bottom W shape, which defines the buy point.
As happens with double-bottom patterns, the second bottom of the W, at 51.45 reached on May 20, is lower than the first. From there the stock has worked its way back to a level that's within 6% of the middle part of the W.
BJ's Near Buy Point
But the stock has also etched a handle, offering an earlier entry. Handles form in the upper half of bases when a stock drifts 8%-12% or so from an interim peak, ideally in quiet volume. BJ's notched such a peak at 66.90 on June 28, with the buy point being 10 cents higher at 67. On Thursday, shares climbed above that level but volume was weak.
This stock to watch could be poised to roll on and solidify the entry. After several failed attempts to mount a sustained rally, the stock market is showing signs of resilience once more. If BJ's breakout firms up as the stock market rallies for real, this stock could be where investors reentering the market funnel their money.
