For years, growth stocks have been beneficiaries of outsized gains compared to the averages. The main criteria we look for when betting on upside in a stock is improving fundamentals, great entry points (technicals) and a history of bullish trading activity in the shares. The hallmark way we go about finding the best stocks – the outliers – is by looking for unusual trading activity. Oftentimes, that can be institutional activity ... i.e., smart money.

We'll go over what that unusual trading activity looks like in a bit. However, the five stocks we see as long-term candidates are Xilinx, Inc. (XLNX), PayPal Holdings, Inc. (PYPL), Chipotle Mexican Grill, Inc. (CMG), Paycom Software, Inc. (PAYC) and Edwards Lifesciences Corporation (EW).

For Mapsignals, we believe that the true tell on the near-term trajectory of a stock lies in its trading activity. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than by simply looking at a company's financials alone. We want the odds on our side when looking for the highest-quality stocks.

Up first is Xilinx, which is a powerhouse semiconductor company. If you are looking for a way to play 5G, this could be the ticket. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Xilinx stock are as follows:

  • Year-to-date (YTD) outperformance vs. market: +20.49% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. sector: +21.03% vs. Technology Select Sector SPDR ETF (XLK)
  • Historical bullish unusual trading signals

Just to show you graphically what our unusual trading activity signal looks like, have a look at all of the unusual institutional (UI) signals Xilinx stock has made over the past year. Green bars are UI buys, and red bars are UI sells. It is clear that there is a lot of green going on with this stock. That's exactly what you want to see when looking for a great growth name.

Chart showing the unusual institutional (UI) signals made by Xilinx, inc. (XLNX)
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On top of technicals, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Xilinx has a solid fundamental history:

  • Q3 2019 year-over-year (YoY) revenue growth rate: +34%
  • Q3 2019 YoY operating income growth rate: +60%

Next up is PayPal Holdings, which is an online payments processor. One of the company's fastest-growing assets is the P2P payment platform Venmo. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for PayPal include:

  • YTD outperformance vs. market: +2.21% vs. SPY
  • YTD outperformance vs. sector: +2.75% vs. XLK
  • Historical bullish unusual trading signals

Below are the UI signals PayPal stock has made the over the past year:

Chart showing the unusual institutional signals made by PayPal Holdings, Inc. (PYPL)
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On top of a great long-term technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, PayPal has solid fundamentals:

  • Q3 2018 YoY revenue growth rate: +14%
  • Q3 2018 YoY GAAP EPS growth rate: +17%

Another growth name to consider is Chipotle Mexican Grill, which is a fast-growing burrito chain. The stock price has been slow in fighting back from E. coli concerns years ago. When we decide on the strongest candidate for long-term growth, we want to see increasing volumes as the price gains. A few areas we like for Chipotle stock are:

  • YTD outperformance vs. market: +14.56% vs. SPY
  • YTD outperformance vs. sector: +13.32% vs. Consumer Discretionary Select Sector SPDR ETF (XLY)
  • Recent bullish unusual trading signals

Below are the UI signals Chipotle stock has made over the past year:

Chart showing the unusual institutional (UI) signals made by Chipotle Mexican Grill, Inc. (CMG)
StockCharts.com

On top of a strong technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Chipotle has a history of solid fundamentals:

  • Q3 2018 YoY revenue growth rate: +8.6%
  • Q3 2018 YoY adj. net income growth rate: +60.3%

Number four on the list is Paycom Software, which is a leading cloud-based human capital management software company. The company aims to enhance the digital progress between organizations and their employees. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Paycom are as follows:

  • YTD outperformance vs. market: +14.87% vs. SPY
  • YTD outperformance vs. sector: +15.41% vs. XLK
  • Recent bullish unusual trading signals

Below are the UI signals Paycom stock has made over the past year. Notice the recent UI buys:

Chart showing the unusual institutional signals made by Paycom Software, Inc. (PAYC)
www.mapsignals.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Paycom has grown over the past year:

  • Q3 2018 YoY revenue growth rate: +32%
  • Q3 2018 YoY GAAP net income growth rate: +38%

Our last growth candidate is Edwards Lifesciences, which is a leader in innovations for heart disease and monitoring solutions. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these factors for Edward Lifesciences include:

  • YTD outperformance vs. market: +7.37% vs. SPY
  • YTD outperformance vs. sector: +9.62% vs. Health Care Select Sector SPDR ETF (XLV)
  • Recent bullish unusual trading signals

Below are the UI signals Edwards Lifesciences stock has made over the past year:

Chart showing the unusual institutional signals made by Edwards Lifesciences Corporation (EW)
www.mapsignals.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Edwards Lifesciences is showing growth:

  • Q3 2018 YoY sales growth rate: +10%
  • Q3 2018 YoY EPS growth rate: +34%

The Bottom Line

Xilinx, PayPal, Chipotle, Paycom and Edwards Lifesciences stocks represent a potential buying opportunity for the long-term investor. Given the strong historical revenue and earnings growth alongside prior multiple unusual buying signals, these stocks could be worth a spot in a growth-oriented portfolio.

To learn more about Mapsignals' institutional signals, please visit our "About Us" page.

Disclosure: The author holds positions in PayPal, Chipotle and Edwards Lifesciences at the time of publication. He holds no positions in Xilinx and Paycom.