This week’s rebound in risk assets has been mighty impressive. And it has me itching to pitch three breakout stocks to buy. We entered Monday amid a four-day losing streak, and mid-morning, things looked grim. But a tidal wave of buying arrived to rescue equities, and we’ve gone on to rally for two additional days. So, with order restored to the market, it’s open season for bullish trades.
Even this morning’s red-hot inflation print couldn’t cool the rally. The Consumer Price Index registered a 7% year-over-year rise, edging out November’s 6.8% print. It’s the highest reading since 1982 and reflects why the market is pricing in as many as five rate hikes this year.
Time will tell if the Federal Reserve moves that aggressively, but investors are laying aside their worries and buying stocks double-fisted.
Here are three of my favorite trade setups right now.
- Qualcomm (NASDAQ:QCOM)
- Walt Disney (NYSE:DIS)
- Berkshire Hathaway (NYSE:BRK.B)
They come from three different sectors, so let that guide your hand if you have a strong opinion on where money is flowing. Let’s take a closer look at each chart.
Breakout Stocks to Buy Now: Qualcomm (QCOM)
In recent months, technology stocks, particularly those with high multiples, have gotten crushed. The reality of rising rates is taking a toll as cheap money becomes slightly less so. But not everyone is suffering similarly.
Qualcomm has held firm in the face of some significant pressure in semiconductors. No doubt its relative strength is mainly due to its monster earnings report from November. Investors were dancing in the Street and bid prices to the moon. The specter of spooky inflation proved powerless to dent the enthusiasm.
QCOM stock has based sideways over the past two months, building a clean base for a potential breakout trade. The round number of $200 beckons above, and I think prices will respond, particularly now that the broad market trend is back to climbing.
The Trade: Buy March $190/$200 bull call spread for $4.
Walt Disney (DIS)
Mickey’s last earnings report was dreadful, and investors quickly punished Disney stock. At the November low, prices had fallen 30% from their highs. The unraveling took place, mind you, while the rest of the market was notching new highs every week.
But, as is always the case with a blue-chip company, the bad news got priced in and a bottom finally formed.
We’ve now climbed nearly $20 and closed back above the 50-day moving average for the first time since the drama began two months ago. This marks a milestone for the recovery and could spell higher prices to come. The gap-fill zone near $165 is the next logical target. Over the past week, a short-term high base pattern has formed, giving us a potential breakout trade over $160.
The Trade: Buy the March $155/$165 bull call spread for $4.30.
Breakout Stocks to Buy Now: Berkshire Hathaway (BRK.B)
Bank stocks are on a rocket ship, and rising interest rates are the fuel. The 10-year yield topped 1.8% on Monday, marking its highest reading since before the pandemic. There’s no shortage of tempting targets in the financial sector, but I’m going with Berkshire Hathaway as the final of today’s breakout stocks for two reasons.
First, Buffett’s flagship owns the type of value companies that the market favors right now. Think real estate, railroads, industrials, insurance and banks.
Second, the stock is on fire and looks fantastic from a technical perspective. The $300 breakout was significant, and buyers swarmed to deliver serious follow-through. Short term, the stock is extended, so feel free to wait for a pullback or pause if you don’t want to chase. I like call spreads when we get a clean entry.
The Trade: Buy the March $320/$330 bull call.
The price is currently $4.30 but will get cheaper if the stock retreats.