Microsoft (MSFT), one of just two Magnificent Seven stocks to move higher amid this week’s stock market drubbing, leads this weekend’s watch list of five stocks near buy points. Like MSFT stock, the other four all are among the 30 stocks that make up the Dow Jones Industrial Average. IBM (IBM), Walmart (WMT), UnitedHealth Group (UNH) and Amgen (AMGN) round out the list.
MSFT is part of the flagship IBD 50 list of leading growth stocks. Both MSFT and UNH stock are part of the IBD Long Term Leaders list, reflecting reliable earnings growth that make them good candidates for buying on a pullback. Yet the current environment is one in which investors should be largely, if not entirely, on the sidelines.
Dow Jones, S&P 500 Correction
The S&P 500 and Nasdaq both entered a traditional correction this week, falling 10.3% and 11.9% from their 52-week closing highs in July. The Dow Jones has held up slightly better, helped by this weekend’s watch-list stocks, but is off 9% from its recent Aug. 1 high. All are at multimonth lows.
The surge in the 10-year Treasury yield, a hawkish Federal Reserve, and an increasingly dangerous geopolitical backdrop make this a dicey time to try and pick a bottom for stocks, as Friday’s market reversal from an early gain demonstrated. Several days of strong performance and, ideally, a follow-through day will be needed before there’s a green light.
Be sure to read IBD’s daily afternoon The Big Picture column to stay in sync with the market’s underlying trend and what it means for your trading decisions.
Microsoft’s fiscal Q1 earnings report on Tuesday fueled a 3.1% rise in Wednesday’s stock market action, though MSFT stock would give much of that back by the end of the week.
Both earnings and sales growth accelerated for a third straight quarter, with EPS up 27% to $2.99 and revenue rising 13% to $56.5 billion — $2 billion ahead of estimates. Highlights included 29% growth for Azure, topping that of the other cloud titans, Google (GOOGL) and Amazon (AMZN).
Microsoft’s Copilot AI tool topped 1 million paid users.
The Dow tech titan guided up on fiscal Q2 revenue, predicting yet another quarter of faster growth, to 16%.
Piper Sandler analyst Brent Bracelin hiked his price target for MSFT stock to 425 from 40o, keeping an overweight rating. The firm noted Microsoft’s profit margin expansion even as it invests heavily in AI, which bodes well for the outlook.
MSFT stock finished the week up 1% at 329.81. MSFT stock has an official buy point of 366.78 from a 15-week consolidation. A move past Wednesday’s high of 346.20 would offer an early entry opportunity. That could develop into a handle in the coming days.
Microsoft’s relative strength line, the blue line in IBD charts that tracks its progress vs. the S&P 500, closed the week at a record high, confirming its leadership.
On Wednesday, IBM topped Q3 estimates, as earnings rose 22% to $2.20 and sales grew 5% to $14.8 billion. Software sales rose 7.8% and consulting revenue 5.6%, offsetting a 2.4% decline in infrastructure revenue.
CEO Arvind Krishna said on the Q3 call that revenue from generative AI “was in the low hundreds of millions of dollars,” but that it could have a much more significant impact in the quarters and years to come. “The interest is larger, with thousands of hands-on interactions with our clients. These are across our largest clients and smaller clients, which lays the groundwork for future watsonx opportunities.”
IBM stock rose 3.9% to 142.52 for the week, breaking above the 50-day line on Thursday before slipping back on Friday. IBM has a 151.93 flat-base buy point, according to MarketSmith. That base is next to a much-larger cup-with-handle consolidation. A move above Friday’s high of 144.70 might be actionable in a more-constructive market climate.
The RS line for IBM is at a nine-month high, already clearing the consolidation high.
Walmart was featured as IBD Stock Of The Day on Thursday as it gains market share in a tough retail climate.
On Tuesday, Tigress Financial hiked its WMT price target to 196 from 182, keeping a buy rating. As consumers pursue value-based pricing, the firm highlighted Walmart’s positioning with its convenience, expanding grocery offerings and digital initiatives.
Walmart’s fiscal Q3 earnings are due Nov. 16. Analysts polled by FactSet expect Q3 earnings of $1.50, flat vs. a year ago, as revenue grows 4% to $159 billion.
WMT stock rose 1.5% to 161.17 last week, as its RS line hit a 52-week high. WMT stock has a 165.85 buy point from a six-week cup base. Shares could forge a handle in a couple of days.
The RS line has been skyrocketing, hitting 52-week highs.
UnitedHealth, Wednesday’s IBD Stock Of The Day, has turned the page after a June earnings warning related to Medicare Advantage customers undergoing more elective surgeries. The Q3 earnings report continued to assuage concerns about medical cost trends. The medical cost ratio, or paid benefits as a share of premiums, came in at 82.3%, below 82.8% estimates.
UNH earnings grew 13% to $6.56 as revenue climbed 14% to $92.4 billion, as both the UnitedHealthcare managed care division and Optum health services arm grew by double-digits.
On Oct. 16, BofA hiked its price target for UNH stock to 660 from 650, touting the firm’s ability to grow EPS 13% to 16% a year, “regardless of the macroeconomic backdrop.”
UNH stock dipped 0.45% to 524.66 for the week. Since hitting an intraday peak the day after its Q3 earnings beat, UNH stock has formed a handle on the end of a long consolidation, with a 546.78 buy point.
Even as UNH stock has forged the handle, the RS line has continued to climb, reaching its best levels since early January.
Amgen got a couple of price target hikes over the past week, though it didn’t help, as AMGN stock slid 6.2% to 261.57.
TD Cowen hiked its AMGN target to 336 from 293, keeping an outperform rating, after updating its model based on the recently completed $28-billion acquisition of Horizon Therapeutics.
Oppenheimer analyst Jay Olson raised his target to 310 from 300, saying he’s encouraged by the progress of Amgen’s oncology pipeline, after recent presentations at the European Society for Medical Oncology.
Two weeks earlier, Leerink Partners analyst David Risinger upgraded Amgen to an outperform, hiking his target to 318 from 267. He cited “accelerating pipeline news-flow, including oncology, obesity and cardiovascular disease,” highlighting potential for late-decade launches.
AMGN stock had surged on Leerink’s upgrade on Oct. 11, but the selloff over the past week severely undercut a 268.24 cup-with-handle buy point, as well as the 50-day moving average.
The 268.24 buy point is still valid, but Amgen stock could use some repair time. The RS Line, while down over over the past several sessions, is still in a strong uptrend.
The biotech giant reports earnings on Wednesday.
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