Josh Brown called the breakouts in these two stocks on his list. Where he sees them going from here
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — What do you do when you catch a breakout perfectly? It doesn’t happen every time but it does happen a lot with the stocks we cover in this column. We haven’t done a little sermon on this yet so today we’re going back a couple of weeks to look at two recent names we wrote up, Flex Ltd (FLEX) and Starbucks (SBUX) . We’ll bring you up to speed with what’s happened since our call. We’re also going to let you in on our thinking about riding a winner once a stock has already broken loose above prior resistance. Some traders are immediately taking profits. I get it. That’s not how I roll, but I know many successful market players who are quick to scalp something and move on to the next. Others would use the opportunity of a breakout to add even more to a position. We don’t cover position sizing in this column because every one of you is managing a different portfolio. Some of you are highly concentrated while others are diversified. That’s beyond our purview but I mention it because adding on strength or lightening up after a breakout to “play with the house’s money” is also an option. My preference is usually to roll up my stops and stay long when a stock breaks out. I’d rather risk the reversal than miss the meat of the move. I like to tighten up my risk management and let it ride. The potential upside is obvious — I may end up never selling as the stock travels significantly higher. The downside of this mentality, though, is also fairly obvious. I could very well end up turning a gain into a loss or a breakeven, leaving money on the table. Life is about trade-offs and this is the trade-off I’ve learned I can live with. Buying a stock at $10, selling at $12 and watching it run to $70 is not something I can live with. So I do what I can to extend the holding period so long as the stock is in an uptrend and above major support. You may not feel the way that I do and have a different mindset about this sort of thing. I won’t try to change you. Remember, we’re not giving advice here, just trying to share our point of view and teach you about the Best Stocks in the Market philosophy. Sean’s going to get into the fundamentals the way we usually do on Thursdays. I’ll be back with the risk management portion and the charts. Best Stock Spotlight: What happens when you catch a breakout perfectly Flex Ltd. (FLEX): Sean — We wrote about FLEX roughly three weeks ago on April 9 , the stock is up about 21% in total return since then. We’ll take it. The stock has done so well in the past month because of its proximity to the AI hardware boom. Last year, their data center segment grew 50% year over year, while margins shot higher the past five years to 8.4% from 5.5%. This was Josh on the technicals: “There is a gap below from the early March move, roughly in the $66 to $68 area. That’s your first real test if this pulls back. Strong stocks don’t have to fill gaps, but if it does, how it behaves there will tell you everything. Hold that zone and it’s just a routine shakeout. Lose it and now you’re talking about a move back toward the 50-day.” The final comment from that piece is all you needed to read to be right on this one: “Above $73, this resolves higher. But even if it pauses, tight action at highs with a gap below acting as support is exactly how sustained trends continue.” Investors are coming around to the idea of a hardware shortage and what it means for earnings. Over the past month, FLEX re-rated from a forward 20x earnings to 25x today. Earnings are next week with more growth in store; EPS is expected to climb to 20% year over year, on top-line revenue growth of 9%. Josh — As I write, the earnings reports from all four hyperscalers have hit the tape, and there isn’t a single indication that any of them are spending less on servers, monitors or any of the other physical hardware needed for the data center boom. We wrote FLEX up at $73 on April 9, flagging the breakout above prior resistance and the rising 50-day as the setup. The stock has done exactly what a healthy breakout is supposed to do: it accelerated. In three weeks it’s up over 20% from our entry level, now trading at $91 with both moving averages well below current price. The 50-day is at $70.47 and the 200-day is at $61.96, both rising. RSI at 72 is elevated but not flashing red. This is a stock that broke out and didn’t look back. For traders who are still long from the April 9 write-up, this is where you roll your stops up. The $80 area is now the first logical support on any pullback and a close back below it would be the first sign this move is stalling. That’s your exit signal. The $64.50 gap level we cited in the original write-up is now ancient history. The stock has blown well past it and your risk management should move up with it. For longer-term investors, the 50-day at $70 is the line. As long as FLEX stays above a rising 50-day, there is no reason to do anything but hold. The 200-day at $62 is only relevant if this thing completely falls apart, which nothing on this chart suggests is coming. You’re welcome to take the gain ahead of next week’s earnings. Remember, investing is about regret minimization. You know yourself better than we do. Starbucks Corp. (SBUX): Sean — The new CEO said this during their earnings yesterday: “This quarter marked a milestone for Starbucks – and the turn in our turnaround,” and the market is percolating on the news, up 8% in response. Revenue was up 9% year over year, global comparable sales were up 6% year over year, and EPS was up 22% year over year. This was the best revenue growth since 2023, year over year comparable sales were up for every region for the first time in nine quarters, and EPS was the strongest it has been since 2023 (granted, it is coming off a low base). There is a lot to like about this earnings report, but the coup de grâce is transaction growth. Instead of leaning on prices, which consumers have taken issue with, SBUX is finally growing volume. U.S transactions were up 4% year over year, the highest growth since 2021. This transaction growth absolutely puts the “turn” in turnaround. Starbucks was another breakout we nailed. We wrote about Starbucks on March 12, the stock is up 5% since then. Josh identified a clear target of $120 if the stock were to have a sustained move above the $100 level, and we are well on our way! Josh — I didn’t take this trade personally, and I’m pretty mad at myself for missing it. In hindsight, it’s easy for me to say to myself “Josh you dummy, you saw it coming…” In reality, there was no way to know for sure that the breakout would manifest. It only looks like it was destined to happen now that it’s made the move. Nobody’s telling you this is easy. Anyway, you don’t want to sell now. I would wait to see what the low volume pullback I expect looks like before pulling the trigger on a long entry but that would be my bias. I think it’s not even close to done going up now that the fundamental turnaround and the technicals are in sync. As Sean mentioned, we wrote up SBUX on March 12, flagging the breakout above $100 as the trigger and calling for a move toward the August 2021 high of $120. Today the stock delivered an 8% post-earnings gap and confirmed everything the chart was telegraphing. The 50-day is now at $96.44 and the 200-day at $89.98, both rising and both well below current price. This is what a legitimate breakout looks like. For traders who were in from the March write-up using $95 as their stop, you’re sitting on a clean gain and the job now is to roll that stop up. The $100 level, former resistance and the exact pivot we identified, is now the line to watch. A close back below $100 on meaningful volume would be the first sign this gap is failing and that’s where you reassess. For longer-term investors who were using $89, the thesis was a return to $120 and nothing about today changes that. The 50-day at $96 is your new risk level. As long as SBUX holds above a rising 50-day, you stay long and let Brian Niccol keep doing his thing. I would check back on this each Friday to make sure it’s holding this level. Don’t micro-manage the position and risk an intra-day whipsaw. Give it space and time if you’re a longer-term investor. 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