A gain of 265% in 2019 for shares of Arrowhead Pharmaceuticals, Inc. (ARWR) has big money buying written all over it. This buying is very unusual and has been happening very recently. I actually wrote about Arrowhead stock a few months back after seeing this buy activity. You can see that article here – shares are up 34% since that report. A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and Arrowhead could be just the opportunity.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, Arrowhead has ramped higher on increasing volumes. As the health care sector breaks higher, Arrowhead is in a leadership position.
For Mapsignals, when we look for an entry on a leading stock, we look for big money signals. Just to show you what our big money activity signal looks like, have a look at all of the big money (unusual institutional) signals Arrowhead stock has made over the past year. The chart is simple – we think that, the fewer indicators, the better. Focusing on 2019, you can see a lot of buy signals (green) all year. What's happening now is a continuation of big buying rushing in:
In 2019, Arrowhead has logged 23 big money buy signals, indicative of buying in the shares (see chart above). This shows that traders are likely thinking that the shares are poised to head higher. These data points suggest that big money appetite for the stock is high.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that the stock is poised for gains. The big money is always looking for an opportunity to buy shares in fast-growing companies. It's all about playing the odds by not fighting the trend.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a long candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Below are a few areas in which Arrowhead stock has grabbed our attention year to date (YTD):
- YTD outperformance vs. market: +239% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. pharmaceutical ETF: +260% vs. SPDR S&P Pharmaceuticals ETF (XPH)
- Recent big money buy signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see that Arrowhead has shown top-rated buy signals for Mapsignals since 2018. The main takeaway is how the buy signals tend to precede a large move higher in the stock. We think that, with a small pullback, an entry could be attractive:
On top of a long-term technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Arrowhead's numbers are very strong:
- Three-year revenue growth rate: +6,543%
- Three-year earnings growth rate: +14.22%
Arrowhead shares are breaking out as the market is at new highs. The company is quietly gaining with demand for its shares. We like the long-term story of the stock. The narrative for Arrowhead and other pharma stocks is one of growth in the years ahead.
We are always on the lookout for great companies pressing higher year after year. The best companies in a group tend to outperform over the long run. Health care stocks have been one of the strongest groups in recent months. All of this points to a long-term opportunity for the stock.
The Bottom Line
Arrowhead is breaking out with buying pressure. Our big money indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the historical growth in share price and growing fundamentals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds no position in Arrowhead shares at the time of publication.