It’s been a tough year for many of the best stocks to buy and watch, hurt in part by a sharp rise in the 10-year Treasury yield amid an increasingly hawkish Federal Reserve. But a handful of the best tech stocks are holding up well as the stock market tries to bottom.

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Stocks with high P-E ratios like Tesla (TSLA) and Nvidia (NVDA) have been hit hard by institutional selling this year, along with security software stocks like CrowdStrike (CRWD) and Zscaler (ZS).

A rising interest rate environment isn’t good for the best stocks to buy in the tech sector with high multiples. Why? Because it makes for a more challenging operating environment. If the stock market senses any possibility of a slowdown in earnings growth from high P-E names, the selling will hit these stocks first.

But the Nasdaq composite and S&P 500 showed bullish price and volume Friday, closing out the week with big percentage gains in higher volume. Both indexes confirmed a new uptrend on Day 7 of their rally attempts.

Now the debate starts as to whether or not it will be a tradeable rally or the start of a new bull market. The 50-day moving average for both indexes looms large as a potential resistance level.

Top Traits Of Best Stocks To Buy

The best stocks to buy and watch aren’t hard to find, as long as you’re fishing in the right pond. Top stocks like Wolfspeed (WOLF) and Shockwave Medical (SWAV) don’t get a lot of attention, but both have characteristics seen in past stock market winners before big price moves.

The best stocks to buy and watch boast strong fundamentals along with leading price performance in their industry group. Many also show favorable fund ownership trends.

The best tech stocks also tend to show resilience in down markets. Use IBD Stock Checkup to quickly identify industry group leaders with the potential to be stock market leaders.

Join IBD experts as they analyze leading stocks in the stock market rally on IBD Live

Screening for the best tech stocks to buy and watch is as easy as looking at the MarketSmith Growth 250, a daily screen of high-quality stocks. Click on any column header to sort the screen as you wish, either by those closest to their highs, stocks with the highest Composite Rating, or stocks trading up in price with the heaviest volume.

The best tech stocks to buy and watch aren’t guaranteed to be huge stock market winners. But they do have qualities seen in past stock market winners before big price gains.

The best tech stocks to buy and watch now include Paylocity (PCTY), Wolfspeed, DoubleVerify (DV), Shockwave Medical and Arista Networks (ANET).

With the stock market still in a correction, none of them are buys currently. But when new institutional money starts to come in from the sidelines, all five could easily resume their market leadership, helped in part by strong fundamentals.

Best Stocks To Buy: Paylocity Stock

Amid a lot of carnage in the enterprise software group, PCTY soared in early August after a bullish earnings report. It had been holding support at the 10-week moving average, but support recently gave way. Watch for a new base to form as PCTY holds support at its 40-week line.

As a cloud-based provider of payroll and human capital management software solutions, Paylocity operates in a crowded industry. But a consistent track record of earnings and sales growth and solid annual earnings estimates make it one of the best stocks to buy and watch among enterprise software firms.

In early August, Paylocity reported another quarter of big earnings and revenue  growth. It also raised its revenue guidance for the current quarter and full year.

Paylocity’s next earnings report is due Nov. 3 after the close.

The Zacks consensus estimate is for adjusted profit of 61 cents a share, up 3% from the year-ago quarter, with revenue up 32% to $239.8 million.

Composite Rating:  89 (on 1-99 scale with 99 tops)

Latest-quarter EPS % change: +74%

Latest-quarter sales % change: 37%

Five-year EPS growth rate: 43%

Annual return on equity: 34%

Up/down volume ratio: 0.7

ANET Stock

On the weekly chart, Arista Networks’ relative strength line has backed off highs as the stock struggles to attract buyers.

To its credit, ANET stock recently bounced off the 100 level, but an Accumulation/Distribution Rating of D- is weak, hurt by signs of institutional selling in the stock that started to show in mid-September.

Arista is a provider of cloud networking solutions to enterprise customers. Earnings growth has accelerated for three straight quarters, from 32% to 35% to 59%. Revenue growth is also accelerating, a sign of strong demand for the company’s products.

The company’s next earnings report is due Oct. 31 after the close. Adjusted profit is expected to jump 42% to $1.05 a share, with revenue up 41.5% to $1.06 billion.

Composite Rating: 98

Latest-quarter EPS % change: +59%

Latest-quarter sales % change: 49%

Three-year annualized EPS growth rate: 19%

Annual return on equity: 25%

Up/down volume ratio: 0.7

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SWAV Stock

Shockwave Medical is in the process of transforming the way calcified cardiovascular disease is treated, using sonic pressure waves for the treatment of calcified plaque.

Shockwave, which launched its IPO in March 2019, still sells at a sky-high multiple, but that’s largely because of six straight quarters of triple-digit revenue growth. The company is expected to produce its first full-year profit this year, with annual earnings up 38% in 2023.

Mutual fund ownership has been steadily rising in recent quarters, a good sign, as fund managers embrace the company’s growth story.

Chart-wise, Shockwave is in a new consolidation after a bullish breakout during the week ended Aug. 12. A move back above the 10-week line would improve SWAV’s technical picture. For now, the buy point is 315.

Shockwave’s next earnings report is due Nov. 7 after the close Quarterly profit is expected to come in at 68 cents a share, up sharply from 5 cents in the year-ago quarter. Revenue is seen soaring 93% to $125.85 million.

Composite Rating: 94

Latest-quarter EPS % change: n/a

Latest-quarter sales % change: +116%

Five-year annualized EPS growth rate: n/a

Annual return on equity: n/a

Up/down volume: 1.3

DV Stock

DoubleVerify operates a software platform for digital media measurement and analytics. Like many of the other best stocks to buy and watch, DV stock boasts strong fundamentals and technicals.

DV, which went public in April 2021, soared in early August after the company reversed a year-ago loss with adjusted profit of 6 cents a share. Revenue growth accelerated for the second straight quarter, up 44% to $109.8 million. The company also raised its revenue guidance for the current quarter and full year.

See Which Stocks Are In The Leaderboard Portfolio

DV has been holding support at its 10-week line as it forms a new base. It’s still vying for a breakout over a 30.02 buy point. With the stock market back on a confirmed uptrend, upside breakouts have a better chance of succeeding.

DoubleVerify hasn’t announced an earnings date yet, but last year the company reported on Nov. 9. Profit is expected to be flat at 5 cents a share, with revenue up 31% to $109.24 million.

Composite Rating: 90

Latest-quarter EPS % change: n/a

Latest-quarter sales % change: +44%

Five-year annualized EPS growth rate: 35%

Annual return on equity: 5%

Up/down volume ratio: 1.0

WOLF Stock

As a provider of chips for the EV market, Wolfspeed has been losing money, but keep in mind WOLF spends a lot on research and development, which can hurt the bottom line. More importantly, revenue growth over the past five quarters has ranged from 35% to 57%.

Wolfspeed had been holding support at its 10-week line in a long consolidation, but support recently gave way. Watch for a new base to form from here.

The company’s next earnings report is due Oct. 26 after the close. WOLF is expected to lose 5 cents a share, but revenue growth is expected to soar again, rising 53% to $239.8 million.

Composite Rating: 77

Latest-quarter EPS % change: n/a

Latest-quarter sales % change: +57%

Five-year EPS growth rate:  n/a

Annual return on equity: n/a

Up/down volume ratio: 0.9

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.

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