The broader markets continue to climb a wall of worry with an impressive bear market rally that's been able to shrug off a barrage of negative news. A close look at this rally reveals a divide in the markets where select areas of outperformance are leaving the rest of the markets behind.
These thriving areas have companies that fit one of two profiles – 1) the company has a healthy enough balance sheet that it can ride out this pandemic or 2) the company has dynamics in place that were set up prior to the pandemic that's allowing them to benefit greatly from a mandated lockdown that's pushed many industries to a standstill.
Below are two companies that have both positive profiles listed above, as well as a third positive - a chart that points to further upside potential.
DAILY CHART OF CHIPOTLE MEXICAN GRILL INC.
The first stock is Chipotle Mexican Grill (CMG) which reported earnings this week that were ahead of estimates. Chipotle has invested in systems over the past 3 years that's put them in the forefront of digital sales among restaurants. And to their benefit, the current lockdown condition has seen online sales soaring 81% over the first quarter for this fast-food Mexican restaurant.
The company's strong balance sheet and no debt has them allocating millions more into their digital business despite the uncertainties surrounding COVID-19 as behavior prior to the pandemic has them convinced that it will be capital well spent.
The stock is poised to break out of a 2-month base following this week's gap up on heavy volume. With the RSI and MACD in positive positions, this leading Restaurant stock is poised to trade higher as their highly developed digital sales platform is hitting the right notes among a quarantined population looking for quality takeout food.
DAILY CHART OF NVIDIA CORP. (NVDA)
The next stock is in the Technology sector where advances in cloud computing and remote data processing are seeing an unprecedented surge in demand. These companies are now the backbone of global virtual learning among home-schooled students as well as the collaborative endeavors among work from home employees.
In the forefront is Semiconductor chip company Nvidia Corp. (NVDA) which began migrating their focus toward data centers over a year ago with the purchase of data center networking company Mellanox. Since then, the company has continued to invest in the development of cutting-edge products that puts them in a leadership role.
The company reported triple digit 4th quarter earnings growth in early February while maintaining full year guidance despite setting aside $100 million due to uncertainty surrounding the coronavirus pandemic. NVDA is currently in a near-term uptrend as the stock continues to bullishly form the right side of a base.
While these companies are currently seeing increased demand for their products due to historically unprecedented conditions, both stocks are poised for growth into next year as systems that were put in place previously, will continue to spur growth.
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Mary Ellen McGonagle, MEM Investment Research