Pop quiz: What’s the #1 sign it’s time to buy a stock?
- A) TV appearance
- B) Earnings
- C) Some economic report
- D) None of the above
If you picked D, you’d be correct. Because if you’re waiting for a specific event, you’re going to miss out on the lion’s share of the gains.
No, the signal you’re looking for is money flow. In other words, major players (such as Wall Street institutions) are starting to accumulate shares…which applies significant, upward buying pressure to the stock.
There is a reason these guys are often called the “smart money.” They tend to buy before everyone else jumps on the bandwagon. Thus, they reap more of the benefits.
You don’t always hear a lot about institutional buying. More often, you hear people talk about fundamentals. Earnings, sales, margins…these things do matter (as I say all the time!) But you don’t want to buy a great company at the wrong time.
That’s why, when I built my Portfolio Grader, I built it to measure fundamentals and buying pressure. The latter is reflected in my Quantitative Grade.
And when a stock achieves an “A” for its Quantitative Grade…it’s time to give it a closer look.
That was the situation with Globant (GLOB) in December. It was a rough time for the market. But my quant formula suggested that big institutional cash was piling into the stock. So, I added it to my list of High Velocity Trades for Accelerated Profits.
By January, I was so pleased with the stock that I moved it to my Ultimate Growth Buy List, as I viewed it more as a longer-term hold given its big upside potential.
And since then, it’s only continued to ramp higher — reaching a new 52-week high on Tuesday, then another on Wednesday! In the six months since I put the stock on my Ultimate Growth Buy List, the price has shot up 68%.
Globant had great fundamentals, including stunning earnings and sales forecasts. But it also had the momentum from all those major institutional players, pushing it higher. And that’s our takeaway here.
You can really see the impact when you compare to stocks that are NOT enjoying institutional buying pressure.
Let’s take regional banks, for example. Plenty of them are strong businesses that, like Globant, earned a strong Fundamental Grade from my Portfolio Grader. Some examples would be First Horizon National (FHN) and Bancorp, Inc. (TBBK).
But their Quantitative Grades of “F” and “D,” respectively, indicated that Wall Street was staying away.
Remember, January was right around the time when Federal Reserve officials started hinting about avoiding future interest-rate hikes — and maybe even cutting rates. For regional banks, that’s extremely bad news, as it also cuts into their profit margins.
And the proof is in the pudding. Compare GLOB’s performance (above) to FHN (below):
In the same time that Globant has racked up new highs, First Horizon National has gone absolutely nowhere. (But with plenty more volatility along the way.)
This is why I often say that my proprietary “quant” score for measuring buying pressure is the “secret sauce” to my success…first as an investor, then as a financial advisor to folks like you.
If you’d like to hear more about how I pinpoint the right stocks to buy — at the right time — click here for a full briefing.
I’m also making a major call on international stocks vs. American stocks, so be sure to check it out by going here.