Stocks to buy

The wavering market is setting up potential breakout stocks for savvy investors. The S&P 500 exchange-traded fund (NYSE:SPY) retreated from its Feb. 2023 peak to gain only 1.98% for the year-to-date. The lack of direction sent the less followed stocks to close near a 52-week low.

Cautious investors may take a while before they realize the positive catalysts that will send shares higher.

MGIC Magic Software $13.44
BAC Bank of America $27.70
DXC DXC Technology $23.18

Magic Software (MGIC)

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Magic Software (NASDAQ:MGIC) exceeded analyst expectations when it reported fourth-quarter 2022 results. MGIC stock fell when the technology supplier of centralized integrated platforms issued weak guidance.

In Q4, Magic Software posted revenue growing by 10.6% year over year to $147.1 million. Net income fell slightly because expenses rose. The firm increased sales and marketing expenses, related mostly to supporting its acquisition of TGG.

The TGG deal closed in the third quarter. It will add to revenue as demand for professional service experts climbs higher.

Magic Software’s over $500 million in annualized revenue is a catalyst. It is leveraging its digital technologies and cloud-based platforms. This creates a strong demand for its innovative solutions. Expect higher customer engagements to lift contract sizes. When the economy strengthens by then, Magic Software will increase its guidance.

Bank of America (BAC)

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Bank of America (NYSE:BAC) fell by a significant 20% in the last month on no news. The megabank posted a slight rise in delinquencies in February. The net charge-off rate of 1.61%, up from 1.50% in January is not a concern.

B of A has several potential catalysts it could unleash from here. It could cut costs in advertorial themes that do not strengthen its brand. Last month, Bloomberg reported it cut up to 200 bank jobs globally. Markets will eventually react positively to the cut, setting B of A as one of the potential breakout stocks.

A panic over the safety of regional banks is driving deposits into B of A higher. When Silicon Valley Bank collapsed, the bank gained $15 billion in deposits.

The increased cash on hand improves the deposit/withdrawal ratio. Customers will have greater confidence in Bank of America’s deposit safety. This should lead to a favorable positive feedback loop that drives deposit amounts higher.

DXC Technology (DXC)

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DXC Technology (NYSE:DXC) is an information technology services and consulting company.

The company enjoyed a buyout premium until it ended talks with a potential buyer. In a statement, it responded to a rumor that a potential buyer approached the firm on Oct. 4, 2022. The buyer could not complete the deal because of challenges in raising the capital.

In the third quarter of 2022, DXC posted revenue of $3.57 billion, down by 12.8% year over year. Investors sent DXC stock from around $29 to $22.92 recently. It posted those weak results plus it issued a fiscal 2024 revenue forecast of 0% to 1% in organic revenue growth.

A rebound in bookings and demand is a catalyst to classify DXC as one of the potential breakout stocks. The customer base is focused on achieving higher efficiency and lower costs. In addition, they need to invest in cyberattack protection, which lifts DXC’s revenue.

Chief Executive Officer Mike Salvino said that DXC offers a unique set of engineering skills. This will sustain its book-to-bill ratio and increase its growth in the longer term.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.

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