Wednesday's IBD 50 Stocks To Watch pick — auto dealer Penske Automotive — is one of the top stocks to buy and watch. Penske stock reclaimed a key level, the 50-day moving average, this week amid a three-day win streak. But shares declined more than 2% Wednesday midday, testing that critical support area.
Stocks To Buy And Watch: Penske
Michigan-based Penske Automotive operates franchised car dealerships throughout the U.S.
Auto retailers continued to capitalize on car shortages through the first part of 2022, delivering fat profits through the first quarter. "Due to the lack of vehicle inventory, there's actually a lot of pricing power for the dealers right now," said David Whiston, an industrials strategist for Morningstar.
In the first quarter, Penske reported earnings soared 111% to $4.76 per share, and sales grew 21% to $6.9 billion vs. the year-ago period. "Demand remains strong across our retail automotive dealerships, with most allocations in new vehicles being presold before they arrive at the dealership," Chief Executive Roger Penske commented on the earnings call.
However, the current quarter isn't expected to be as strong, with the company's earnings and sales estimated to be flat year-over-year, according to FactSet. Earnings results are due out July 27 before the market opens.
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IBD Stock Ratings
Penske stock shows a strong 97 out of 99 Earnings Per Share Rating and a solid B out of a best-possible SMR grade of A, according to IBD Stock Checkup. The SMR Rating analyzes a company's sales, margins and return on equity, and offers a letter grade from A (the best) to E (the worst).
Along with a three-year EPS growth rate of 56%, Penske boasts a 32.9% annual ROE.
Meanwhile, the stock has a 98 out of a perfect 99 IBD Composite Rating, ranking in the top four stocks within the wholesale automotive industry group. Investors can use the IBD Composite Rating to easily gauge the quality of a stock's fundamental and technical metrics.
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Penske Stock Eyes Buy Point
Penske shares are moving up the right side of a new base that features a 123.70 buy point, according to IBD MarketSmith pattern recognition. Be on the lookout for a potential handle to offer a more risk-optimal entry.
This week, the stock regained its key 50-day moving average line, which has been a resistance area to watch for several weeks. But on Wednesday, the stock threatened to give up a part of this week's solid gains, falling more than 2% midday.
With a relative strength line that is holding relatively near recent highs in a volatile market, Penske is one of the top stocks to buy and watch in today's market. The RS line measures a stock's price performance vs. the S&P 500.
Even though the stock is showing strength, the market outlook remains muddle, though it is perking up in recent sessions. The stock market is still in an uptrend under pressure, per IBD's The Big Picture, so investors should be more conservative.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on top stocks to buy and watch and the stock market.
