A gain of 34.33% in 2019 for shares of The Walt Disney Company (DIS) likely couldn't have happened without smart institutions being along for the ride. One thing is clear – the shares show a high amount of unusual trading activity. It’s bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. This stock is interesting because the company has a long history of outperformance. 

Smart money managers are always looking to bet on the next outlier stocks … the best in class. The main criteria we look for when betting on upside in a stock include a history of strong fundamentals, solid technicals, and unusual trading in the shares.

I'll go into the fundamental picture later, but the true tell on the near-term trajectory of the 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, Disney stock has clearly been in demand.

For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Disney stock has made over the past year.

Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. This is exactly the kind of setup we look for at our research firm. We want to bet on the best … period. This move is notable because stocks move based on supply and demand. This is a chart showing big demand:

Chart showing the unusual institutional (UI) signals made by The Walt Disney Company (DIS)

So far in 2019, DIsney has logged nine unusually high-volume days, indicative of buying in the shares (see chart above). But what gets our attention now is that Disney is still gaining quietly but in an unusual way, which suggests that demand for the stock is increasing.

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. Just like you don't want to fight the trend, you also don't want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities 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 strong candidate, we consider leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas in which Disney stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +12.59% vs. SPDR S&P 500 ETF (SPY
  • YTD outperformance vs. discretionary sector: +9.30% vs. Consumer Discretionary Select Sector SPDR Fund (XLY)
  • Recent bullish unusual trading signals

Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2012 when Disney made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. Clearly, we have been all over the massive run-up over the past few years. This company has all of the characteristics that make it a potential outlier:

Chart showing the top-rated buy signals made by The Walt Disney Company (DIS)

On top of a 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, Disney's latest earnings report showed year-over-year (YoY) growth, but the demand for the shares suggests that more positives are in store for the company in the future:

  • Q2 2019 YoY revenue growth rate: +3%
  • Q2 2019 YoY diluted EPS from continuing operations growth rate: +81%

Disney shares are breaking out to highs with the expectation that its new streaming debut will be a hit. We like the long-term story of the stock. The narrative for Disney is that it has a stable of high-quality content that its fans will crave once the streaming service is available. We are always on the lookout for great companies showing usual trading activity in the shares. The best companies tend to trend higher over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

Disney represents a potential buying opportunity for the long-term investor. Given the lift in price, historical fundamental outperformance, and recent unusual accumulation signals, this stock could be worth a spot in a growth-oriented portfolio. 

Disclosure: The author holds no position in Disney shares at the time of publication.