Have you ever found yourself saying a stock is too expensive because it’s made a big move in a short period of time? Or that a stock is too cheap to ignore because its price has fallen sharply? Anchoring bias, or the tendency to fixate on a past price when considering a new investment idea, can significantly hold back your returns because it can cause you to avoid top-performing stocks and mistakenly, invest in impaired businesses.
A better option is to focus on businesses, rather than stock prices relative to past price points. Using a system, such as our service, to identify stocks likely to outperform and then, considering if the business itself will enjoy tailwinds or face headwinds can help you pack your watch list with winners.
And this type of stock picking is increasingly important because the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) is currently trading in no man’s land, an area between 5% below and 5% above its 200-day moving average (DMA).
It’s at points like this markets can become volatile, more selective, and tougher to decipher as a tug-of-war between buyers who missed the move and sellers that are using resistance to lock in gains develops.
In short, we’re in a period of greater uncertainty. The current rally could stall or make another leg higher and good arguments can be made for both.
Economic data is undeniably bad. Many businesses are closing and jobs are permanently disappearing and that could finally trump the monetary and fiscal intervention that’s propped the market up the past two months. Alternatively, there’s significant pent-up demand from investors who shifted assets into money markets that could propel the S&P 500 higher.
Unfortunately, our long-term overbought/oversold indicator isn’t as much help now as it was at March’s low or January’s peak. Currently, 23% of our 1,500 stock universe is trading above its 200 DMA and that’s neither too low nor too high to draw any actionable conclusions. Historically, a reading above 30% can indicate it’s time to start reining in margin and a reading of 40% or higher can suggest raising cash is wise. For example, in the 2018 bottom and recovery, the indicator took a breather in the low 30% range in February 2019. If we reach those levels, we’ll let members know, but for now, focusing on the top sectors and stocks is smart.
The best sectors now
Our system ranks major market sectors and industries by market cap weekly by aggregating individual stock scores. Our system is explained more here, but to paraphrase, it incorporates:
- Forward earnings growth expectations,
- Historical trends in reporting earnings that beat Wall Street estimates,
- Insider buying,
- Short-term and long-term institutional money flow,
- Forward valuation relative to historical valuation,
- Contra-trend short interest analysis, and
- Quarterly seasonality over the past decade.
Currently, the best large-cap sectors are healthcare, technology, and services. Technology, consumer goods, healthcare, utilities, and services are top-rated in mid-cap, while healthcare, technology, and financials offer upside in small cap.
Source: Top Stocks for Tomorrow.
The top stocks to buy
Stocks follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme, so our system can be a great source of top stock ideas.
Last week, we shared over 80 stock ideas with members, including the following top scoring stocks within these select sectors.
|BEST SCORING||5/28/2020||4 WEEK MA|
|Agnico Eagle Mines Limited||(AEM)||BASIC MATERIALS||GOLD||95||98.75|
|The Sherwin-Williams Company||(SHW)||BASIC MATERIALS||SPECIALTY CHEMICALS||90||77.5|
|Ecolab Inc.||(ECL)||BASIC MATERIALS||SPECIALTY CHEMICALS||85||76.25|
|The Hain Celestial Group, Inc.||(HAIN)||CONSUMER GOODS||PACKAGED FOODS||105||100|
|Pool Corporation||(POOL)||CONSUMER GOODS||LEISURE||95||90|
|McCormick & Company, Incorporated||(MKC)||CONSUMER GOODS||PACKAGED FOODS||90||82.5|
|Monster Beverage Corporation||(MNST)||CONSUMER GOODS||BEVERAGES||90||82.5|
|Polaris Inc.||(PII)||CONSUMER GOODS||RECREATIONAL VEHICLES||85||80|
|Cabot Oil & Gas Corporation||(COG)||ENERGY||OIL & GAS E&P||105||101.25|
|EQT Corporation||(EQT)||ENERGY||OIL & GAS E&P||85||82.5|
|eHealth, Inc.||(EHTH)||FINANCIALS||INSURANCE BROKERS||95||87.5|
|PayPal Holdings, Inc.||(PYPL)||FINANCIALS||CREDIT SERVICES||95||96.25|
|Moody’s Corporation||(MCO)||FINANCIALS||FINANCIAL DATA & STOCK EXCHANGES||90||87.5|
|MSCI Inc.||(MSCI)||FINANCIALS||FINANCIAL DATA & STOCK EXCHANGES||90||92.5|
|Medpace Holdings, Inc.||(MEDP)||HEALTHCARE||DIAGNOSTICS & RESEARCH||110||97.5|
|AbbVie Inc.||(ABBV)||HEALTHCARE||DRUG MANUFACTURERS||100||90|
|Quest Diagnostics Incorporated||(DGX)||HEALTHCARE||DIAGNOSTICS & RESEARCH||100||98.75|
|Illumina, Inc.||(ILMN)||HEALTHCARE||DIAGNOSTICS & RESEARCH||100||86.25|
|Ligand Pharmaceuticals Incorporated||(LGND)||HEALTHCARE||BIOTECHNOLOGY||100||91.25|
|Sarepta Therapeutics, Inc.||(SRPT)||HEALTHCARE||BIOTECHNOLOGY||100||92.5|
|AstraZeneca PLC||(AZN)||HEALTHCARE||DRUG MANUFACTURERS||95||93.75|
|Chemed Corporation||(CHE)||HEALTHCARE||HOME HEALTH CARE||95||82.5|
|Addus HomeCare Corporation||(ADUS)||HEALTHCARE||HOME HEALTH CARE||95||72.5|
|DexCom, Inc.||(DXCM)||HEALTHCARE||DIAGNOSTICS & RESEARCH||95||98.75|
|Inspire Medical Systems, Inc.||(INSP)||HEALTHCARE||MEDICAL DEVICES||95||80|
|Molina Healthcare, Inc.||(MOH)||HEALTHCARE||HEALTHCARE PLANS||95||95|
|Neurocrine Biosciences, Inc.||(NBIX)||HEALTHCARE||BIOTECHNOLOGY||95||80|
|Veeva Systems Inc.||(VEEV)||HEALTHCARE||HEALTH INFORMATION SERVICES||95||93.75|
|Vertex Pharmaceuticals Incorporated||(VRTX)||HEALTHCARE||BIOTECHNOLOGY||95||97.5|
|Old Dominion Freight Line, Inc.||(ODFL)||INDUSTRIALS||TRUCKING||105||103.75|
|Marten Transport, Ltd.||(MRTN)||INDUSTRIALS||TRUCKING||100||98.75|
|Sturm, Ruger & Company, Inc.||(RGR)||INDUSTRIALS||AEROSPACE & DEFENSE||90||87.5|
|Siteone Landscape Supply||(SITE)||INDUSTRIALS||INDUSTRIAL DISTRIBUTION||90||81.25|
|American Tower Corporation (REIT)||(AMT)||REITs||REITs-SPECIALTY||95||80|
|CoStar Group, Inc.||(CSGP)||REITs||REAL ESTATE SERVICES||90||88.75|
|QTS Realty Trust, Inc.||(QTS)||REITs||REIT-INDUSTRIAL||85||86.25|
|Equinix, Inc. (REIT)||(EQIX)||REITs||REIT-SPECIALTY||85||82.5|
|Chegg, Inc.||(CHGG)||SERVICES||EDUCATION & TRAINING SERVICES||105||105|
|Stitch Fix, Inc.||(SFIX)||SERVICES||SPECIALTY RETAIL||100||75|
|Strategic Education, Inc.||(STRA)||SERVICES||EDUCATION & TRAINING SERVICES||95||90|
|Dollar General Corporation||(DG)||SERVICES||DISCOUNT STORES||95||97.5|
|Electronic Arts Inc.||(EA)||SERVICES||ELECTRONIC GAMING & MULTIMEDIA||95||95|
|Lululemon Athletica Inc.||(LULU)||SERVICES||APPAREL RETAIL||95||88.75|
|MercadoLibre, Inc.||(MELI)||SERVICES||INTERNET RETAIL||95||88.75|
|Ollie’s Bargain Outlet Holdings, Inc.||(OLLI)||SERVICES||DISCOUNT STORES||95||93.75|
|Tractor Supply Company||(TSCO)||SERVICES||SPECIALTY RETAIL||90||88.75|
|Activision Blizzard, Inc.||(ATVI)||SERVICES||ELECTRONIC GAMING & MULTIMEDIA||90||91.25|
|Amazon.com, Inc.||(AMZN)||SERVICES||INTERNET RETAIL||90||88.75|
|Etsy, Inc.||(ETSY)||SERVICES||INTERNET RETAIL||90||93.75|
|Coupa Software Incorporated||(COUP)||TECHNOLOGY||SOFTWARE-APPLICATION||105||102.5|
|Zillow Group, Inc.||(Z)||TECHNOLOGY||INTERNET CONTENT & INFORMATION||105||97.5|
|CoreLogic, Inc.||(CLGX)||TECHNOLOGY||INFORMATION TECHNOLOGY SERVICES||100||93.75|
|Alarm.com Holdings, Inc.||(ALRM)||TECHNOLOGY||SOFTWARE-APPLICATION||100||88.75|
|EverQuote||(EVER)||TECHNOLOGY||INTERNET CONTENT & INFORMATION||100||97.5|
|Manhattan Associates, Inc.||(MANH)||TECHNOLOGY||SOFTWARE-APPLICATION||100||81.25|
|Match Group, Inc.||(MTCH)||TECHNOLOGY||INTERNET CONTENT & INFORMATION||100||92.5|
|New Relic, Inc.||(NEWR)||TECHNOLOGY||SOFTWARE-INFRASTRUCTURE||100||83.75|
|Twilio Inc.||(TWLO)||TECHNOLOGY||INTERNET CONTENT & INFORMATION||100||93.75|
|Zillow Group, Inc.||(ZG)||TECHNOLOGY||INTERNET CONTENT & INFORMATION||100||92.5|
|TerraForm Power||(TERP)||UTILITIES||UTILITIES-INDEPENDENT POWER PRODUCERS||90||87.5|
|Dominion Energy, Inc.||(D)||UTILITIES||UTILITIES-DIVERSIFIED||85||81.25|
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Disclosure: I am/we are long MNST, PYPL, ILMN, DXCM, INSP, VRTX, EA, NFLX, AMZN, CRM, AYX, MDB, NOW, SMAR, TWLO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.