This earnings season has had no small number of winners. Indeed, the number of companies rallying after their reports is significant compared to other quarters in recent years. Over the weekend my search for the best stocks to buy revealed many breakout setups in companies that scored strong post-earnings rallies.
The appeal of the breakout pattern is multi-fold. First, when a stock breaks a previously impenetrable ceiling, it signals buyers are strengthening their grip. Consider it a bullish omen that portends higher prices on the horizon. Second, interested spectators actively scan for stocks breaking to fresh highs. They often jump into breakout stocks, adding further fuel for continued upside.
Third, stocks with clear resistance levels provide easy price zones to trade around. This allows traders to build low-risk, high-reward trades.
With that, let’s take a look at three breakout stocks to buy.
Do you know what’s better than a 52-week high? All-time highs! And that’s what Starbucks (NASDAQ:SBUX) shares reached today. The coffee-chain giant has held up very well during the market’s recent temper tantrum. Boosted by two solid earnings reports, SBUX stock has held firm over the past four months.
The up-gap and follow-through after January’s release lifted SBUX directly into overhead resistance at $69. And rather than forming a handle to its cup, the stock cut right through the ceiling on Friday. The rally is continuing this morning.
To capitalize on the breakout, buy the April $70/$75 bull call spread for $1.90. The risk is limited to $1.90, and the reward is capped at $3.10.
The turnaround in Mastercard (NYSE:MA) following last quarter’s descent has been orderly, and downright impressive. January’s robust earnings release and the subsequent jump in the stock price were merely the icings on the cake. With MA stock now north of rising 20-day, 50-day and 200-day moving averages, bulls have officially wrested back control of the trend across all time frames.
The fact that sellers couldn’t muster more than a two-day pullback before buyers rushed back in is telling. Friday’s bullish engulfing candle suggests we want to see buyers of a break above the minor resistance pivot at $217. A run toward the peak at $225.35 seems only a matter of time.
Buy the April $220/$240 bull call spread for $6. The risk is limited to $6 and will be forfeit if MA sits below $220 at expiration. The reward is limited to $14 and will be captured if the stock rises above $240.
World Wrestling Entertainment (WWE)
Momentum traders fell in love with World Wrestling Entertainment (NYSE:WWE) last year. Tripling in value will do that to a stock. Though the fourth-quarter thrashing soured sentiment for a spell, this year’s turnaround has buyers returning.
WWE stock is rising above all its major moving averages, and last week’s earnings release spurred a price breakout over $84. I particularly like how quickly the early morning weakness was bought up during Thursday’s trading after the company’s report.
With resistance now felled, WWE is positioned for a run back to its all-time high of $97.69. Bull call spreads provide a cheap, limited-risk way to bank on further upside.
Buy the April $85/$95 call spread for $4.05. The risk is limited to the original cost, and the reward is limited to $5.95.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.