August began with a triple-digit gain for the Dow Jones Industrial Average as investors rushed to buy more speculative stocks, and the European and Chinese markets also made substantial gains. Yet, this euphoria was followed by disappointing earnings and worse-than-expected economic reports.
In addition, there are a number of technical factors that cast doubt on the sustainability of the current rally. This means that investors should approach August with caution, selecting only the most technically sound stocks.
Here is our list of the top stocks to buy for August:
Top Stock #1: AmerisourceBergen Corp. (ABC)
Pharmaceuticals service company AmerisourceBergen Corporation (NYSE: ABC) provides drug distribution and related services.
The stock has been in a steady bull channel supported by the 50-day moving average for over a year. Despite a recent correction, the stock is up more than 80% since its low in March 2009.
ABC’s growth record has outpaced the industry average of 10.2%, but it has a P/E ratio of just 14 versus the industry average of 16.87, meaning its price appreciation potential is better than its peers. Earnings growth of more than 32% has made ABC an institutional favorite.
Our technical target is $40, and TheStreet.com rates it a “buy,” along with S&P, which has a 12-month target of $36 for the stock. ABC was on my list of the best stocks for July, and thanks to a pullback, it is even a better value now.
Top Stock #2: Barrick Gold Corp. (ABX)
Barrick Gold Corporation (NYSE: ABX) is an acquirer, explorer and developer of gold, copper, silver and zinc.
The stock pulled back from a high of $48 in early December 2009, and bottomed at just under the 200-day moving average at $35 in February. Since then, it has found support at its ascending 200-day moving average. That ascending support is putting pressure on the major bearish resistance line (triple-top) at $47.
A new buy signal was generated by the stochastic late in July. If ABX breaks the triple-top, look for a major move higher by ABX with a long-term target of $55. S&P rates ABX a “three-star buy” with a 12-month target of $57.
Top Stock #3: Kulicke and Soffa Industries (KLIC)
Kulicke and Soffa Industries Inc. (NASDAQ: KLIC) manufactures capital equipment used to assemble semiconductor devices. The stock has been in a bull market since it completed a double-bottom in March 2009 at under $3.
After the bottom, it rallied quickly to over $6, and then established a channel trend with very stable support and resistance lines. Following a break on very high volume to over $9 in mid-April, this volatile stock pulled back on profit-taking to under $6. Since then, KLIC found its way by stabilizing at the 200-day moving average again, which is where it is now. The stochastic is very oversold, but negative volume appears to have resulted in a selling climax.
The target for KLIC is $8.75 in one month. If you choose to take a position in this volatile stock, place a stop-loss order at $5.75.
Top Stock #4: SanDisk Corp. (SNDK)
SanDisk Corporation (NASDAQ: SNDK) makes and distributes NAND-based flash storage card products that are used in various consumer electronics products.
The stock has been a favorite of mine since the market lows in March 2009, and it has been a winner. It was first recommended at under $25 and doubled within one year. Now, following a consolidation with support at $40, it is again worth considering for both a trade and as a quality addition to a portfolio of technology stocks. Note the double buy signal from our proprietary indicator, the Collins-Bollinger Reversal (CBR). Also, the rising stochastic indicates that the bottom at $40 should hold.
The 12-month target for SNDK is $50 and Ford Equity Research maintains a “strong buy” recommendation, noting that SanDisk’s operating earnings yield of 9% ranks above 85% of the companies in its sector.
Top Stock #5: Ship Finance International (SFL)
Ship Finance International Limited (NYSE: SFL) is an international operator of vessels and offshore related assets, including oil tankers, bulk carriers and a variety of other ships.
The stock has risen from $13 to over $20 since July 2009. Following a break and run from $15 in February to $21, SFL has been consolidating within a right triangle. But during this time, the stock has been under accumulation. Following a false breakout in July, the stock reversed, but it should find support within the triangle with strong support at the 50-day moving average now at $18.25.
Note the strong buy signal from our internal CBR indicator at just under $18. SFL pays an annual dividend of $1.53, a yield of almost 8%, and has a trading target of $23-plus.
Top Stock #6: Sprint Nextel Corp. (S)
Leading wireless and telecommunications provider Sprint Nextel Corporation (NYSE: S) has been in a bear market since 2006, falling from over $24 to under $2 in late 2008. I began recommending Sprint early this year at $3.25, and traded it to over $5. But following a pullback from $5 in mid-July, Sprint again looks like a solid buy.
The trading target is raised to $6, but a run to $10 by year-end is possible. The pullback in S is not unusual, and since the stock is consolidating within a triangle, we’ll stick with the former targets and accumulate the stock above $4.20. S&P rates Sprint a “four-star buy” and recently increased its 12-month target to $6 from $5.
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