It may not feel like it, but we kick off the second quarter today after a surprisingly strong first quarter.
Investors remain generally sour on stocks, despite an outstanding 16.8% surge in the Nasdaq Composite and a 7% jump in the broader S&P 500.
If you were in the right stocks in the first quarter, you could have made good money in that quarter. And if you weren’t, there’s more to come in the remaining three quarters of the year.
I saw an interesting tweet from Ryan Detrick of Carson Investment Research pointing out that when the S&P 500 gains 7% or more in the first quarter, it has never had a down year. It’s happened 16 times, and every single one has been positive – with the average gain of 23%.
I also believe we are on the precipice of a stronger market as inflation continues to cool and the Federal Reserve stops raising interest rates.
That said, it’s still what we call “a stock picker’s market” – that rising tide isn’t going to lift all boats. In fact, some are taking on water.
Let’s look at three of the best and three of the worst stocks in the market right now, according to my Quantum Edge system.
As a reminder, my system analyzes thousands of stocks every single trading day to help us highlight those with the best predictors of higher prices – those with superior fundamentals, strong technicals and price action, and Big Money support.
It then crystallizes all that data down to one easy-to-use Quantum Score to help determine the probability of making money.
Three Top Stocks
Seeing how much the Nasdaq soared in the first quarter, it’s no major surprise that three of the top-ranked stocks in my system are tech stocks.
Top Stock No. 1: Arista Networks (ANET)
With an exceptional Quantum Score of 91.4, this cloud networking company was also a standout winner in terms of performance, gaining 38.3% in the first quarter. Its fundamentals and technicals individually also rate 91, showing it is firing on all cylinders.
That includes Big Money support, with 13 Big Money buy signals (unusually heavy buying) in the quarter (all those green bars).
Top Stock No. 2: Copart (CPRT)
Copart may not look like an exciting company from the outside. It’s a leader in the used-car market and related services, but this company is a beast. With a current Quantum Score of 89.7, Copart also rates nearly the same in technicals and fundamentals. Growth is solid, and Big Money made its presence known with buy signals in each of the first three months of the year.
Top Stock No. 3: Allegro MicroSystems (ALGM)
Allegro develops semiconductor devices. It is a leader in power-saving technologies and sensors, with its products used in everything from self-driving vehicles to industrial automation. Its Quantum Score of 87.9 is just behind ANET and CPRT, but its stock was the biggest winner of the first quarter with a scorching 60% gain.
Note: I recommend all three of these companies in my Quantum Edge Pro service, where I use this same Quantum Edge system. They are all trading above their recommended buy limits at the moment and have helped power us to a strong first quarter. One is up nearly 50% for us, and we already took partial profits. (These are the types of stocks my system constantly searches for.)
Three Bottom Stocks
When we flip to the bottom of the list, it gets a little more cluttered. More stocks have similarly low rankings, so I’ll focus on three that you might recognize.
The absolute bottom stock in my system is Bed Bath & Beyond (BBBY), which isn’t a surprise considering all the chatter that it will go bankrupt. It registers a Quantum Score of just 13.8, which is about as low as it can get. Its Fundamental Score (which is part of the overall Quantum Score) is an almost nonexistent 4.2.
We won’t count that one, so here are three more…
Bottom Stock No. 1: GameStop (GME)
This Fortune 500 video game company is just bizarre, in large part because of the whole meme stock movement in which individual investors on social media platforms decide to buy a stock – usually a heavily shorted stock – and rocket it higher. That’s what happened with this stock in 2021 when it went from $5 to $120 in January of that year.
GME popped a couple of weeks ago after surprising Wall Street with its earnings, but the stock still ranks low in my system with a Quantum Score of 22.4 for the first quarter. The score today is higher at 51.7 because of the recent jump in price, but the fundamentals continue to rate poor at 33.3.
Sales growth is down the last one and three years, and the company’s profit margin stands at -5.3%. We did spot a couple of Big Money buy signals in March after the positive earnings surprise, but they were the first since one signal last August and two signals exactly one year ago. I’d still be very leery of this stock.
Bottom Stock No. 2: Norwegian Cruise Line Holdings (NCLH)
This is an interesting example of our Quantum Edge system at work. Norwegian Cruise Line’s sales are actually quite good, BUT the profit margin is -46.9%, which is horrible, and debt is mind-blowingly high at 20,774.3 times equity. The first-quarter Quantum Score also came in at 22.4.
We’ve only seen two Big Money buy signals in the last 12 months, but that’s in contrast to eight sell signals in that same period.
Bottom Stock No. 3: Rivian Automotive (RIVN)
This one-time highflier fell 18% in the first quarter and has crashed more than 67% in the past 12 months. This electric truck maker slipped more today after reporting that deliveries and production fell sequentially in the first quarter from the fourth quarter.
It’s a challenging environment for EV companies, as there just aren’t enough raw materials to produce the batteries needed to power them. Earnings growth has been poor, and the -407.2% profit margin is pretty frightening.
It’s a volatile stock, so we do see some unusual buying from time to time. But as you can see, the last 12 months have been dominated by sells (the red lines).
Focus on the Trifecta
Whether a stock is a household name or under the radar, there is no substitute for quality.
Quality fundamentals show a thriving business that continues to grow.
Strong technicals show that demand for a stock – or buying pressure – outweighs supply. That’s a prescription for higher prices.
And institutions are responsible for 70% to 90% of average daily volume, so why any investor wouldn’t factor that into their analysis is beyond me. I designed our Quantum Edge system to detect the footprints of Big Money at work, no matter how much the pros try to sneak around unseen.
Have you ever tried to sit on a two-legged stool? I hope not because you’d likely topple over. Same with stocks. Without all three legs of the stool, any stock you invest in has a higher risk of falling. And with those three legs, our data and backtesting show a 70% chance you’re investing in a winner.
I think more stocks will do well in the coming months as the market strengthens, but stocks with these three advantages – or “quantum edges” if you will – should lead the way in the big moves higher and stay stronger in any enduring volatility.
Editor, Jason Bodner’s Power Trends