Today's IBD Screen of the Day focuses on the Rising Profit Estimate screen, which has turned up three stocks forming new bases: Merck, Hubbell and Asbury Automotive. That makes them growth stocks to watch.
This screen captures companies for which Wall Street analysts have been raising earnings estimates for the coming quarters or years. Such upward revisions suggest a company's business is booming — and that is one of the most reliable harbingers of higher stock prices.
Merck is trying to break out of a cup-with-handle base, according to MarketSmith. MRK stock poked above a handle buy point of 89.58 on Friday, the day after it posted 84% Q1 earnings growth that beat analyst expectations. But the stock has since drifted lower. The buy zone goes up to 94.06. The 7%-8% sell rule would kick in at 83.31-82.41.
High Rating For Growth Stock To Watch
Merck has a strong Earnings Per Share Rating of 93 out of the highest-possible 99.
The New Jersey-based maker of prescription drugs to treat diabetes and respiratory, heart and other diseases ranks No. 1 in its ethical drug industry group, according to Stock Checkup. The group itself sits at No. 34 among IBD's 197 industry groups.
Merck is a member of the IBD Big Cap 20 list of growth stocks to watch.
Hubbell, which makes electrical wiring and power transmission systems for utilities and industrial markets, gets a green up arrow for earnings estimate revisions in Stock Checkup. This signal uses an IBD proprietary formula that looks at estimated earnings growth for the current quarter, current year and next year.
The upward revisions could indicate that Hubbell is patching up some spottiness in other aspects of its fundamentals, in which quarters of strong growth have been interrupted by weakness.
Earnings growth was 20% or greater in three of the past four quarters, but dipped 3% in last year's Q3. The decline resulted in average earnings growth of the past three quarters of 15.7%, below the preferred 25% or greater.
HUBB stock is forming a cup base. The chart pattern began at its most recent peak of 212.54 on Nov. 22. It passed beneath both its 50-day moving average and 200-day moving average on its way to a bottom of 170.76 on Feb. 24. From there it began building the right side of the cup base. In the process it regained both its 50-day and 200-day lines, which are bullish signs for this growth stock to watch.
Another positive is that Hubbell's relative strength line, as seen on a weekly view of its chart on MarketSmith, is flashing a blue dot. This signifies the stock's RS line has attained a new high, a hallmark of outperformance in the stock market.
HUBB stock is now about 8% below its buy point of 212.64.
One blemish in the daily chart is that the biggest volume day of the current pattern came on April 22, a day when the stock price fell 2%. But it quickly got back on track and reversed higher on above-average volume the next three days.
Asbury Automotive
Car dealership Asbury Automotive is working on a cuplike formation, with a buy point of 201.86. The stock fell from a peak of 230.97 on Oct. 22, 2021, and recovered to 201.76 on March 2. That level now 10 week ago represents a significant area of the resistance that the stock is close to breaking above.
Earnings have risen 80%, 68% and 98% in the past three quarters. Since reporting Q1 earnings on April 28, the stock has climbed steeply in the past five trading sessions to build the right side of the base.
Asbury is on the IBD 50 list of highly rated growth stocks to watch.
