In this piece, we will take a look at 11 breakout stocks to buy now. If you want to skip our analysis of the stock market and want to jump to the top five stocks in our list, then take a look at 5 Best Breakout Stocks to Buy Now.
The mini week of trading after the July Fourth holiday came with a series of surprises for investors. These were in the form of multiple data releases, all of which covered the state of the labor market. This market is one of the hottest (literally and figuratively) markets right now, since not only is it not refusing to slow down (much to the delight of politicians) but also because the Federal Reserve is watching it like a hawk. Growth in the labor market, especially when it is tight, results in an increase in wages that eventually contribute to inflation. Given that inflation is one of the biggest problems facing the American economy right now, the Federal Reserve is publicly committed to bringing it down through interest rate hikes.
The slew of data releases in the first week of July revealed that the private sector added more than twice the number of jobs that economists had predicted. At the same time, unemployment claims for the final week of June also ticked up and the unemployment rate did not fall. Additionally, both the number of job openings and the opening rate declined in May as well, indicating on a whole that perhaps the economy is finally ready to slow down after taking a brutal beating in the form of ten interest rate hikes.
Despite high rates and the constant worries of a recession, the stock market has performed remarkably well this year. The star of the show is the NASDAQ 100 index - up by 39.4% during the first half of this year to mark its strongest performance in decades. The index's fortune was boosted by big technology firms and mega cap stocks such as Meta Platforms, Inc. (NASDAQ:META) and Microsoft Corporation (NASDAQ:MSFT) which have profited from the mania surrounding artificial intelligence. If you're interested in some hot NASDAQ stocks, be sure to check out 15 Best NASDAQ Stocks To Buy Today.
However, the past is past and it's time to look at the future. After all, even as investors took a well earned break after H1, the reality still remains that inflation is high and more potential interest rate hikes might be looming on the horizon. And the latest employment data that we've talked about above is already making its mark on the market. After trading closed on the day the private payrolls data was released, the Dow Jones Industrial Average (DJIA) fell by a percent and two year Treasury yields jumped to 5.12% - at levels that it had stood in 2007. Investors' fear about more interest rate hikes was mirrored in the Cboe Volatility Index which closed the day to mark an 8.9% jump - which seems paltry considering the fact that it had jumped by a stunning 14.7%, mirroring growth levels that it had reached when bank shares fell earlier this year after the dramatic failure of several high profile banks.
All eyes therefore shifted on the payrolls report for June that was due Friday. The private payrolls report set the scene for the upcoming release that will set the tone for the Federal Reserve's next meeting later this month. The central bank will decide whether to increase or keep rates the same, and optimistic investors have been penciling in just one rate hike for July. Officials at the central bank have currently decided to act cautiously, as ten interest rate hikes take their time to work through the economy. However, fears persisted that an unrelenting jobs market might force them to return to the brutal hawkishness displayed in 2023 when stunning 75 basis point hikes were delivered at a time when inflation had crossed 9%.
So were investors expecting from the payrolls report that investors are waiting for with bated breaths? Well, Dow Jones consensus estimates believed that the number of jobs will grow by 240,000. The Labor Department's data for May showed that the economy had added 339,000 jobs (revised later to 309,000), and had the estimate held, then the labor market will have slowed down only annually. The May report had seen jobs drop by 51,000, and a reading of 240,000 for June would have implied an annual drop greater than a hundred thousand. Safe to say, the economic situation right now is quite different from a year back, but the key investor irritant is a resistant market that just invites the Federal Reserve to pump up the rates.
The data itself was a pleasant surprise that turned around the narrative of the labor market refusing to budge on its head. It revealed that the U.S. economy added 209,000 jobs which ended up significantly undershooting market estimates and falling quite low over the data for May. As a result, major stock indexes including the NASDAQ 100, NASDAQ Composite, the S&P500, and the NYSE Composite all jumped - with the U.S. dollar also tumbling in the currency market.
So what to do in a world where markets go one way one day and another the next? Well, perhaps a recent analysis from Morgan Stanley might help, where the investment bank takes a rather gloomy tone:
In the current market, we see a few opportunities. In fixed income, consider adding duration by investing in longer-maturity bonds. In equities, we believe that U.S. stock returns are apt to be below average. Investors should diversify using active managers or equal-weighted indices. We continue to see Japanese and emerging-markets stocks, as well as commodities, as good hedges for a peaking U.S. dollar.
With this backdrop, let's take a look at some stocks that are performing well as part of coverage of the top breakout stocks to buy. Some notable names are Intuit Inc. (NASDAQ:INTU), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Intuitive Surgical, Inc. (NASDAQ:ISRG).
11 Best Breakout Stocks to Buy Now
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Our Methodology
To compile our list of the best breakout stocks to buy, we used the top forty stocks by weight in the IBD Breakout Opportunities ETF and ranked them by the number of hedge fund investors in Q1 2023 according to Insider Monkey's database of 943 funds. Out of these, the top 11 breakout stocks were selected.
Zimmer Biomet Holdings, Inc. (NYSE:ZBH) is a healthcare and medical devices company that makes and sells orthopedic products. The firm had a good month in June in terms of analyst coverage since all new notes maintained the share rating at Buy or Overweight.
By the end of 2023's first quarter, 51 of the 943 hedge funds part of Insider Monkey's database had bought and owned Zimmer Biomet Holdings, Inc. (NYSE:ZBH)'s shares. Out of these, the firm's largest shareholder is Israel Englander's Millennium Management through its $356 million stake.
Along with Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Intuit Inc. (NASDAQ:INTU), and Intuitive Surgical, Inc. (NASDAQ:ISRG), Zimmer Biomet Holdings, Inc. (NYSE:ZBH) is a hot breakout stock to watch.
ON Semiconductor Corporation (NASDAQ:ON) is a semiconductor firm that sells power management and sensor chips. It scored a big win in June 2023 when it was added to the NASDAQ 100 index.
Insider Monkey took a look at 943 hedge funds for their March quarter of 2023 shareholdings and found out that 51 had held a stake in the chip firm. D. E. Shaw's D E Shaw is ON Semiconductor Corporation (NASDAQ:ON)'s largest shareholder in our database, owning 2.7 million shares that are worth $224 million.
Discover Financial Services (NYSE:DFS) is a digital bank that offers credit cards, accounts, and other services. It is taking a keen interest in the startup industry these days, by launching a fund for investment.
54 of the 943 hedge funds part of Insider Monkey's Q1 2023 database had held a stake in Discover Financial Services (NYSE:DFS). The bank's biggest hedge fund investor is John Smith Clark's Southpoint Capital Advisors due to its $247 million investment.
Expedia Group, Inc. (NASDAQ:EXPE) is a travel services firm that provides trip bookings and other services. 24 out of the 31 analysts covering its stock have a rating of Buy or higher.
As of March 2023, 62 of the 943 hedge funds polled by Insider Monkey had invested in the firm. Expedia Group, Inc. (NASDAQ:EXPE)'s biggest shareholder is Paul Reeder and Edward Shapiro's PAR Capital Management since it has a $339 million stake in the firm.
Costco Wholesale Corporation (NASDAQ:COST) is an American retailer that sells a host of different products such as groceries, cosmetics, and appliances. The firm's June sales reflected an inflation induced spending downturn as the sales grew by a mere 0.4%.
After digging through 943 hedge funds for their first quarter of 2023 shareholdings, Insider Monkey discovered that 63 had held the retailer's shares. Ken Fisher's Fisher Asset Management is Costco Wholesale Corporation (NASDAQ:COST)'s biggest hedge fund investor with an investment worth $1.2 billion.
Lam Research Corporation (NASDAQ:LRCX) is a backend semiconductor firm that makes and sells equipment for the minutiae of chip fabrication such as etching and deposition. Its shares are rated Buy on average and it has an average share price target of $621 - for a nice $59 upside.
64 of the 943 hedge funds polled by Insider Monkey for their Q1 2023 shareholdings had invested in Lam Research Corporation (NASDAQ:LRCX). Out of these, Ken Fisher's Fisher Asset Management is the biggest stakeholder, courtesy of a $1.4 billion investment.
Intuit Inc. (NASDAQ:INTU), Lam Research Corporation (NASDAQ:LRCX), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Intuitive Surgical, Inc. (NASDAQ:ISRG) are some top breakout stocks finding favor with hedge funds.
