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March 25, 2026

Our First DA Watchlist: 4 Stocks That Made The Cut & Why

Watchlist vs. Alert: This is a watchlist post, not a formal Direction Alert. The stocks below have cleared our Stage 1 screening criteria and are actively being monitored. A formal alert with a specific entry recommendation will only be issued once our confirmation criteria are met. We’re watching — not yet acting.

A New Approach

We’ve been quiet for a while. That’s on us, and we addressed it directly in this week’s subscriber email. The short version: we paused rather than force alerts we weren’t fully convicted on, spent time reassessing our process, and came out the other side with a framework we feel better about.

The core change is this: Direction Alerts now operates on a two-stage model. Our screening process identifies stocks that are oversold, under pressure, and fundamentally intact — stocks where the price has moved more than the business justifies. Those go on the watchlist. A formal alert only follows when price action confirms that sellers have actually exhausted themselves.

We’ll give up some percentage points by not entering at the absolute bottom. In exchange, we stop catching falling knives. Given what we’ve seen in the portfolio, that tradeoff is worth making.

We tightened our criteria, ran the process, and four stocks came back strong enough to warrant your attention. Here’s what we found.

🔍 Watchlist Candidate #1: Microsoft (MSFT)

The setup at a glance:

  • Closed Tuesday at $373 — down 33% from its October 2025 high of $540
  • RSI: 21 — extreme oversold, rarely seen at this scale in a $2.7T company
  • Trading just 7.5% above its 52-week low of $344.79
  • Forward P/E: ~23x — cheapest valuation in three years

Microsoft is one of the most consistently profitable businesses ever built. It crossed $100 billion in annual net income for the first time last fiscal year. Revenue grew 17% in its most recent quarter. Its cloud platform grew 26%. Operating margins exceed 46%. The company holds a contractually committed revenue backlog measured in the hundreds of billions of dollars.

And every single one of the 53 analysts covering the stock — 53 out of 53 — maintains a Buy or Strong Buy rating. Zero Holds. Zero Sells. The average 12-month price target implies roughly 59% upside from Tuesday’s close.

So why is it down 33%?

The selling has almost nothing to do with the business. What started as mild investor anxiety over one slightly-below-whisper cloud growth sub-metric in January became a full-blown macro correction compounded by geopolitical conflict, oil pushing toward $100 per barrel, re-accelerating inflation, and the Federal Reserve holding rates steady. The Nasdaq is down 15% from its February high. Microsoft has been swept up in that indiscriminate selling.

The January earnings report — the one that triggered the initial decline — actually beat on every headline metric: revenue up 17%, EPS up 5.3%, cloud up 26%. Investors focused instead on rising capital expenditure and a one-quarter dip in free cash flow. That anxiety became the kindling. The macro environment lit the match.

The business hasn’t changed. The price has.

What we’re waiting for before alerting:

  • Price reclaims its 20-day moving average on a closing basis
  • April 28 earnings confirm continued operational strength and stable cloud trajectory
  • A high-volume reversal day — 1.5x+ average volume on an up day — signaling institutional accumulation
  • Geopolitical de-escalation removing the primary macro overhang

The risk we’re watching: If elevated oil prices persist for months, enterprise IT budget freezes could translate into genuine Azure demand softness — converting a macro selloff into a fundamental one. That would materially change the thesis, and we’d say so immediately.

🔍 Watchlist Candidate #2: Wingstop (WING)

The setup at a glance:

  • Closed Tuesday at ~$165 — down 57% from its 2024 all-time high of $426
  • RSI: deeply oversold, trading near the bottom of its 52-week range ($184 low)
  • 22 analysts covering the stock, majority Buy or Strong Buy
  • Average price target: ~$335 — approximately 80% upside from current levels

Wingstop built one of the most compelling franchise models in the restaurant industry. It operates nearly 3,100 locations globally, growing at nearly 20% per year in unit count. It opened a record 493 net new restaurants in 2025 — more than one new location per day for the full year.

Then the comp sales numbers hit. Domestic same-store sales declined 5.8% in the fourth quarter of 2025, the weakest reading in the company’s history. The stock cratered.

Here’s what the market is getting wrong:

Same-store sales declined. EBITDA grew 15%. That combination is only possible because Wingstop’s economics are driven by franchise royalties, not restaurant-level sales. The fee stream holds up even when individual unit volumes soften. Meanwhile, franchisees — despite the comp weakness — continued opening new locations at a record pace. You don’t sign a lease and build a restaurant if you think the brand is broken.

Management guided for flat to low-single digit domestic comp sales growth in 2026, with 15-16% global unit expansion. The market priced in full brand deterioration. The franchisees voted with their checkbooks by building more stores than ever.

In March, the board also authorized an additional $300 million share repurchase, bringing total buyback capacity to $1.05 billion. That’s not the behavior of a management team that thinks the business is in trouble.

What we’re waiting for before alerting:

  • A clear higher-low formation — a pullback that holds above the prior low, confirming buyers are stepping in earlier
  • Next earnings report confirming EBITDA growth continues despite comp softness
  • Any improvement in consumer spending data for the core demographic (lower-income, Hispanic consumers)

The risk we’re watching: If domestic comp sales continue declining past guidance expectations — particularly if the broader consumer environment deteriorates — unit economics could eventually follow. At some point, persistently weak comps do affect franchisee profitability. We’re watching that line carefully.

🔍 Watchlist Candidate #3: Dollar General (DG)

The setup at a glance:

  • Closed Tuesday at ~$118 — down 24% from its February 2026 high of $158
  • RSI: oversold territory
  • Q4 earnings (March 12): EPS beat by 20% — $1.93 vs $1.60 expected
  • Same-store sales: +4.3% in Q4, with every single month above 3.5%
  • 22 analysts covering: majority Buy; average target ~$140-148
  • Next earnings: May 21, 2026

Dollar General operates over 20,900 stores across the United States — one of the largest physical retail footprints in the country — serving predominantly rural communities with limited alternatives. Its core customer doesn’t trade down when times get hard. They’re already at the bottom of the value chain.

The Q4 report on March 12 was strong by any measure. Revenue rose nearly 6% year-over-year. Gross margins expanded 105 basis points. Operating profit more than doubled. The EPS beat by 20%. Management raised the quarterly dividend.

So why did the stock drop ~10% on earnings day?

The 2026 guidance. Management projected same-store sales growth of 2.2-2.7% for the year — below the 3%+ analysts had hoped for. That guidance reflects real uncertainty: tariff pressure on imported goods, higher gas prices squeezing the core low-income customer, and a more competitive promotional environment.

Two things are worth noting. First, Dollar General has significantly less direct China import exposure than most retailers — management cited only 5-9% of goods directly imported — which means tariff pressure may ultimately hit them less than feared. Second, the core customer base tends to become more, not less, loyal to dollar stores when economic conditions tighten. The selloff is punishing a conservative management team for being honest about an uncertain environment.

What we’re waiting for before alerting:

  • Price stabilization and a higher-low forming on the daily chart
  • Tariff clarity that removes the primary guidance overhang
  • May 21 earnings confirming Q1 comps are tracking in line with guidance or better

The risk we’re watching: If the consumer environment deteriorates sharply — higher gas prices compounding with rising unemployment — even the discount retail category can see genuine traffic decline. The guidance was cautious for a reason. We want confirmation, not hope.

🔍 Watchlist Candidate #4: Cintas (CTAS)

The setup at a glance:

  • Closed Tuesday at ~$177 — down ~24% from its pre-deal high near $230
  • Revenue growth: +8.9% year-over-year in most recent quarter (record revenue)
  • EPS growth: +9.7% year-over-year
  • Full-year revenue guidance: 8.4-8.7% growth
  • 7 Buy / 12 Hold / 2 Sell; median price target ~$215 — ~21% upside from Tuesday’s close

Cintas is one of the most consistent compounding businesses in the S&P 500 — a dominant player in uniform rental and facility services with over 1.5 million business customers across North America, decades of uninterrupted revenue growth, and operating margins near 27%. It has outperformed the S&P 500 by more than 750% over the past decade.

On March 11, the company announced a $5.5 billion acquisition of UniFirst — its largest competitor — to be financed with a combination of cash and stock. The deal would increase Cintas’ laundry facility count by approximately 50% and combine the two largest route networks in North America. Analysts covering the deal broadly view the $375 million in targeted synergies as potentially conservative.

The stock dropped immediately and has not recovered.

Here’s the nuance:

The market’s concern is legitimate: regulatory risk, integration complexity, and the temporary leverage increase that comes with any large acquisition. The antitrust review process is real and its outcome uncertain. But notably, the underlying business executing beneath all of that deal uncertainty has continued performing at a high level — 8.9% revenue growth, record gross margins, raised guidance.

This is a business that sold off because of a strategic announcement, not because of operational deterioration.

What we’re waiting for before alerting:

  • Regulatory clarity on the UniFirst acquisition — any DOJ/FTC indication of an unobstructed path forward
  • Sustained price stabilization above $175-180 on improving volume
  • A clear higher-low formation on the daily chart confirming deal-related selling has run its course

The risk we’re watching: If the acquisition faces significant antitrust resistance or requires material divestitures, the deal discount in the stock could persist for an extended period. We have no edge in predicting regulatory outcomes. That’s why this one requires confirmation before we act.

The Common Thread

All four of these setups share a structure we find analytically compelling: the stock price has moved dramatically, but the business fundamentals haven’t deteriorated to match.

A dominant software platform growing 17% revenue with the cheapest valuation in three years — selling off on macro fear. A franchise restaurant with record unit growth — selling off because same-store comps softened on a consumer pressure that hasn’t yet touched franchisee expansion plans. A discount retailer that beat earnings by 20% — selling off because it guided conservatively into tariff uncertainty. A business services compounder with record revenue and raised guidance — selling off because it decided to make its biggest acquisition ever.

None of these are formally confirmed as alerts yet. Confirmation matters — we’ve learned that lesson. But all four have cleared our fundamental and macro filters, and we’re monitoring each one closely for the signal that sellers are done.

We’ll publish an alert immediately when any of these moves to confirmed status.

Direction Alerts provides educational market analysis, not investment advice. All investing involves risk, including the possible loss of principal. Always conduct your own due diligence and consult a financial advisor before making investment decisions. Past watchlist coverage does not guarantee future alerts or returns.

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