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5G Artificial Intelligence Company Stock Price Breaking Out
April 15 2019 - No. 1-Rated 5G AI Stock Xilinx Launches Run With Breakaway Gap By Investors Business Daily
When searching for the best stocks to buy and watch, there are several telltale clues to look for. One is to focus on the top-rated stocks in the top-ranked industries. Another is to look for stocks launching a heavy-volume breakout from a sound chart pattern. Artificial intelligence and 5G technology leader Xilinx (XLNX) recently fit both those bills.
On Dec. 28, 2018, Xilinx was added to the Leaders Watch List on Leaderboard, IBD's premier stock alerts and technical analysis platform. It was also featured in the IBD Big Cap 20 on Jan. 21, as it was continuing to build a base.
At the time, its fabless semiconductor industry group ranked No. 42 out of the 197 groups IBD tracks. And with a 98 Composite Rating, Xilinx was one the top-ranked stocks among its peers, boosted by two quarters of accelerating earnings growth.
In general, you want to focus on stocks in the Top 40 groups, and by Jan. 24, the fabless semiconductor group had risen to No. 33. Today, the group has climbed into the No. 4 spot, and with the highest-possible 99 Composite Rating, Xilinx shares top billing in the industry with Mellanox Technologies (MLNX) and Monolithic Power Systems (MPWR).
AI, 5G Stocks To Buy And Watch
So as a new market uptrend took hold at the beginning of the year, Xilinx was already showing many of the common traits of winning stocks. And since it was already on both the Leaders Watch List and the IBD Big Cap 20, you had time to add it to your own list of stocks to watch and do your own research.
Keep in mind that over time nearly 50% of a stock's move is tied to its industry group (37%) and sector (12%). Xilinx was in good shape on both those counts as it built a new base, and it continues to benefit from increasing demand for its AI and 5G technologies.
Earnings growth has also continued to accelerate. The chip designer has now posted three straight quarters of rising EPS gains, including a 42% increase for the third quarter (ended Dec. 29, 2018) of its fiscal 2019. For fiscal Q4, analysts expect a 67% gain, earning Xilinx a spot among 19 stocks expecting 50% to 4,200% EPS growth in their next earnings report.
Buying Into A Breakaway Gap
After being on the Leaders Watch List for several weeks as it built a base, Xilinx triggered a buy signal on Jan. 24 following earnings. It bounced off its 50-day line as it flashed a breakaway gap on its way to a one-day gain of 18.4%.
There are three lessons to highlight here.
First, it's risky to buy a stock just before it reports earnings. Yes, you may grab a nice profit if the stock takes off on strong numbers. But the stock also can tank if the numbers or future guidance disappoint. You're better off waiting for the stock to report and see how the market reacts. That's why the Leaderboard markets team held off buying Xilinx until after it released its latest numbers.
Second, while you generally want to avoid buying stocks that are extended (i.e., beyond a traditional buy range), buying into a heavy-volume breakaway gap from a proper base can be profitable. It certainly has been for investors who got into Xilinx as Leaderboard triggered a buy alert on Jan. 24.
The traditional buy point for the base Xilinx had been forming was 95.28. But the stock soared right past that entry as it gapped up. When that happens, you can use the day's opening price as a buy point, which for Xilinx was 98.10.
When buying a gap-up, you want to buy as close to that opening price as possible. The purchase price for Leaderboard was 102.50.
The third lesson is that you can minimize your risk by getting into stocks gradually. In the case of Xilinx, we started by taking a half position. (For Leaderboard, a half position is $62,500, based on a $1 million portfolio comprised of up to eight stocks.) If a stock continues to move higher, you can add more shares. If the initial breakout fails to gain traction or heads south, you can get out without having risked too much of your money.
Xilinx Stock: Sell Or Hold?
From there, Xilinx quickly rose more than 20%, triggering an eight-week hold rule for investors with conviction in the stock. After stocks make a sudden gain of over 20% in just two or three weeks, it's not unusual for them to flash a sharp, but hopefully temporary, pullback. The eight-week hold rule can help you sit through such a move and hold on for a bigger gain on stocks making excellent early runs.
Starting on March 4, Xilinx looked like it might make such a pullback, and did fall below its 10-day line over the next few days. A breach of that short-term average can be an opportunity to take profits. But for investors applying the eight-week hold rule, Xilinx bounced back to deliver additional gains. From the Jan. 24 breakout, the stock is now up over 30% (based on Leaderboard's 102.50 entry).
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