Eli Lilly (LLY) and albemarle (ALB) stocks lead the watchlist this weekend of stocks that have shown resilience amid the sell-off and may lead the way if market conditions improve. Together with LLY stock and ALB, money tree (DLTR), Cigna (CI) and World Wrestling Entertainment (WWE) round out the list of stocks that offer both upside potential and some protection against current economic risks.
All stocks have ascending relative strength lines, indicating that they are beating the S&P 500. To some extent, all stocks except Eli Lilly have been underperforming for a while, but now seem to be upping their game.
The fledgling rally that started with Thursday’s rally of lows and Friday’s strong rally has yet to prove itself with a follow-up day. But even if it does, investors probably won’t want to be cautious. The most recent CPI inflation data underlined that the Federal Reserve still has a lot of work to do to sufficiently dampen demand without stifling economic growth.
In other words, don’t expect a switch that rekindles fallen favorites whose charts are so corrupted that they have no obvious entry points. There is a good chance that the qualities that supported this weekend’s watchlist will remain in high demand.
Eli Lilly has earned a spot in the flagship IBD 50 list of stocks, as well as the IBD Leaderboard portfolio. WWE stocks and DLTR recently joined the Leaderboard watchlist.
Eli Lilly Stock
Eli Lilly, who was IBD Stock Of The Day on Wednesday, has been setting up since it easily beat Q1 estimates on April 28. The big news that day, however, was the release of phase 3 data for its tirzepatide obesity drug, showing patients lost 16. % -22.5% of their body weight, depending on the size of the dosage.
After the gain, Wells Fargo analyst Mohit Bansal raised his price target for the LLY stock from 280 to 305, with an equal weight rating. The analyst said he expects revenue growth of 11% and EPS growth of 21% between 2022-2027, putting Eli Lilly among the top biopharma companies.
On Friday, LLY stock closed fractionally at 291.63, just above the 50-day line. Eli Lilly didn’t participate in Friday’s big rebound led by beat-up techs. But as a defensive growth name, LLY stock has held up in recent weeks despite a massive sell-off in the market.
Eli Lilly shares have a buy point of 314.10 off a flat base within a base-to-base pattern. However, a solid move above the 50-day line breaking the downward trendline from the April 7 high would be doable.
Albemarle sold hard after releasing disappointing earnings estimates on Feb. 16, despite rising lithium prices. Investors seemed to be getting impatient with higher costs, production constraints and contracts locked in at prices well below market levels.
But Albemarle straightened the ship on May 4 with its first-quarter profit blow, thanks to renegotiated contracts. Albemarle raised its 2022 EPS target to $9.25-$12.25, from $5.65 to $6.65 earlier.
While prices of other metals are falling amid a more muted economic outlook, lithium pricing appears more certain amid expected prolonged undersupply.
On Friday, ALB’s stock rose 7.2% to 228.82. The past two sessions have seen ALB shares bounce off its 50-day line and recapture its 200-day moving average.
Lifting the May 5 high of 243.18 could be a speculative entry point as that is actually too low to be valid. A break above 248, where ALB shares have stalled twice, including just before the disappointing Q4 report, would provide a clearer green light.
Dollar Tree Stock
Dollar Tree is a defensive retail game well suited to deal with the current slowing economy with high inflation. It has also been successful in controlling cost pressures, executing its plan to increase the price of many items to $1.25.
However, DLTR stocks have been a long-term underperformer until recently, mainly attributed to the acquisition of Family Dollar.
But investors appear to be growing more confident in Dollar Tree’s prospects after the company reorganized its board of directors in March and appointed former Dollar General CEO Rick Dreiling as executive chairman. After the move, Loop Capital analyst Anthony Chukumba improved DLTR stock to buy on hold, raising his target from 140 to 200. He wrote that Dreiling “will dust off the Dollar General playbook.” at Family Dollar.
DLTR stock broke out and rose about 18% on the move, but has since bounced back to its 50-day line. A strong bounce above 50 days, breaking above the downtrend line, would be doable. Dollar Tree stocks could be flat in a week.
Cigna stocks were late in joining this year’s rally among managed-care stocks. The group has fared well amid lower Covid costs and health costs in general.
However, Cigna has been underperforming for a long time since it acquired Express Scripts, a prescription drug management company.
But now Wall Street is starting to see value. A wave of the biosimilar market 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 from its commercial focus.
Cigna shares have carved out a cup-with-handle pattern for a year and are now about 4% below a buy point of 270.07.
In early April, World Wrestling Entertainment announced that WrestleMania 38 was the most attended event in the company’s history, with 156,352 visiting AT&T Stadium in Dallas over two days.
The return of live events offers some protection from an attenuating consumer. After better-than-expected Q1 results on May 5, Benchmark analyst Mike Hickey said now is the time to buy WWE stock. He predicted that the content will attract multiple new bidders next year for deals that go into effect in 2024.
WWE shares rose 1.6% to 58.25 Friday. The stock is 9% below a buy point of 63.81 after finding support on the 200-day line last week. However, a strong move past the 50-day line and breaking the trendline would provide an earlier entry point.
WWE stock’s flat base sits alongside several failed bases, but relative strength has improved to its 11-month high.
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