In a 1670 book of English proverbs, John Rays coined, “The early bird catches the worm.”
But some 300 years later, British broadcaster Jeremy Paxman wisely said: “The early bird may get the worm, but it’s the second mouse that gets the cheese.”
In other words: being timely is one thing, but being clever is better.
I can’t think of a more applicable perspective on the markets right now. With the market talking out of both sides of its mouth, it’s tricky to tell if we should jump in now… or wait until the election uncertainty clears in a few weeks.
But in today’s essay, I’ll show you whether it’s best to be an early bird, or the second mouse…
Tossing Out the Playbook
Regular readers know I’ve spent the last decade perfecting a system that can tell us what the big money is buying every single day.
So on one hand, we have dread-filled headlines and election uncertainty looming. And on the other hand, we have the only thing I’ve come to trust in analyzing markets and stocks: big money data.
Currently, the two are in a bit of a conflict. But in the end, I have to go with the hard data. And that data says that the buyers are back.
That may not fit the expected game plan of post-election bump. Indeed, every election year since our data began in 1990 exhibited a clear pattern: big money sells ahead of uncertain elections, and buys thereafter. This year looked to be setting up the same way, but recent buying has appeared. And it’s shifting the tides:
But while we’d expect the big money to buy unloved stocks as a safe haven ahead of election uncertainty – utilities, staples, communications, or dividend stocks – that’s not what I’m seeing here.
So let’s look at which stocks are floating to the top of the rankings.
My system ranks 5,500 stocks from strongest to weakest. It factors fundamentals like sales and earnings growth, profit margins, and debt levels… while also looking at the technical strength of each stock.
Once all stocks are graded on those factors, it then looks for big money buying. This slims down the pool of 5,500 to about 100 per day. By looking at the top-ranked stocks, we can see what leadership is emerging at market pivot points.
The seismic shift in buying has been clear for the last week or so, but that shift hasn’t been into defensive stuff. Instead, the big money is flocking to the aggressive, growth-oriented names.
That is a very bullish sign. The top 20 stocks of big money buying is often where we can find tomorrow’s winners.
Here’s an analysis of my highest ranked 20 stocks seeing big money buying last week, from a pool of 318 names:
|Sector||# of Stocks||Portion of Top 20|
What’s fascinating is that the top 20 stocks boasted the following average metrics:
1-year sales growth of +35%
3-year sales growth of +38%
1-year earnings growth rate of +71%
3-year earnings growth rate of +37%
Profit margin of +16%
These are all outstanding fundamentals. So, the big money isn’t buying junk stocks – it’s buying quality, under-the-radar names that few people ever think to invest in.
But what does this all mean for the current market dynamic?
The Big Money Says to Be an Early Bird
The picture emerging is this:
Buyers are back, and they’re buying top-quality stocks.
This is offensive action, not defensive.
Election uncertainty is becoming less of a hurdle for big money. Or better yet, they think they know who will win. (I don’t know who…)
The mid-earnings season shopping spree shows us that fundamentals still matter to the big money. Sometimes great stocks can report great numbers and guidance and the big money will still sell them, if the trend is not expected to continue. That’s not what we’re seeing here.
Past performance is not necessarily indicative of future results. The same can be said for big money election data. In several past election years, buying occurred just after the election, but this year it seems to be coming early. At least for now.
As always, we’ll do well to follow that big money into the highest-quality stocks in the market. And right now, they’re giving us the all-clear to start shopping.
Patience and process!
Editor, Palm Beach Insider
P.S. Those top 20 stocks that my system filters? The ones that tend to be the household names of the future?
Those are the same top 20 that I use to highlight recommendations for my Palm Beach Trader readers.
Regardless of your thoughts on the market right now, the one strategy that’s always worked for me is following the big money into quality stocks. And now that we’re in 13F season, we’re seeing a ton of buy signals on surprising names…