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 are 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. big money. We'll go over what that unusual trading activity looks like in a bit. But the five stocks we see as long-term candidates are Costco Wholesale Corporation (COST), The Home Depot, Inc. (HD), Starbucks Corporation (SBUX), SolarEdge Technologies, Inc. (SEDG), and Shake Shack Inc. (SHAK).

At 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 Costco Wholesale Corporation (COST), which is a leader in bulk groceries and household products and a fast-growing retail chain. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. The following are a few areas in which Costco stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +28.45% vs. SPDR S&P 500 ETF (SPY
  • YTD outperformance vs. discretionary sector: +25.26% vs. Consumer Discretionary Select Sector SPDR Fund (XLY)
  • YTD bullish unusual trading signals

Just to show you graphically what our unusual trading activity (big money) signals look like, have a look at all of the potential unusual institutional (UI) alerts in the chart below. Costco has shown a strong chart over the past year. Green bars are showing that Costco was likely being bought by an institution according to Mapsignals. 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 Costco Wholesale Corporation (COST)
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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, Costco has delivered solid year-over-year (YoY) growth:

  • Q3 2019 YoY revenue growth rate: +7.35%
  • Q3 2019 YoY diluted net income growth rate: +20%

Next up is The Home Depot, Inc. (HD), which is a top home improvement company. It has been growing nicely with bullish unusual trading activity. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success, with a few for Home Depot being:

  • YTD outperformance vs. market: +12.99% vs. SPY 
  • YTD outperformance vs. discretionary sector: +9.8% vs. XLY
  • Recent bullish unusual trading signals

Below are the UI signals Home Depot stock has made over the past year. Clearly, buying has been strong in 2019:

Chart showing the unusual institutional (UI) signals made by The Home Depot, Inc. (HD)
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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, Home Depot has solid fundamentals:

  • Q2 2019 revenue growth rate: +1.2% vs. the prior year
  • Q2 2019 diluted EPS growth rate: +3.9% vs. the prior year

Another growth name to consider is Starbucks Corporation (SBUX), which is a leading coffee company. When we decide on the strongest candidate for long-term growth, we want to see increasing volumes as the price gains. A few technical areas we like for Starbucks are:

  • YTD outperformance vs. market: +35.40% vs. SPY 
  • YTD outperformance vs. discretionary sector:+ 32.21 vs. XLY
  • Recent UI buy signals

Below are the big buy signals Starbucks stock has made over the past year:

Chart showing the unusual institutional (UI) signals made by Starbucks Corporation (SBUX)
www.mapsignals.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. Starbucks' growth rate is impressive. Just look at the recent figures:

  • Q3 2019 YoY consolidated net revenue growth rate: +8%
  • Q3 2019 YoY GAAP EPS growth rate: +26%

Number four on the list is SolarEdge Technologies, Inc. (SEDG), which is a leading solar semiconductor firm. The shares have been in bull mode in 2019. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few strengths for SolarEdge include:

  • YTD outperformance vs. market: +117.31% vs. SPY
  • YTD outperformance vs. technology sector: +106.27% vs. Technology Select Sector SPDR Fund (XLK)
  • Recent big money buy signals

Below are the big money signals that SolarEdge has made over the past year:

Chart showing the unusual institutional (UI) signals made by SolarEdge Technologies, Inc. (SEDG)
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, SolarEdge has been growing nicely:

  • Q2 2019 YoY revenue growth rate: +43%
  • Q2 2019 YoY GAAP operating income growth rate: +12%

Our last growth candidate is Shake Shack Inc. (SHAK), which is a leader fast casual burger dining. The company has been growing rapidly, and the shares have been on a tear. When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success, with a few for Shake Shack being:

  • YTD outperformance vs. market: +101.21% vs. SPY
  • YTD outperformance vs. discretionary sector: +98.02% vs. XLY
  • Recent bullish big money signals

Below are the big money signals Shake Shack has made over the past year. You can see that this stock has been in a steady uptrend in 2019.

Chart showing the unusual institutional (UI) signals made by Shake Shack Inc. (SHAK)
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, Shake Shack is still in growth mode:

  • Q2 2019 YoY revenue growth rate: +31.3%
  • Q2 2019 YoY Adj. EBITDA growth rate: +18.5%

The Bottom Line

Shares of Costco, Home Depot, Starbucks, SolarEdge, and Shake Shack represent potential buying opportunities for the long-term investor. Given the strong historical revenue and earnings growth, along with multiple big money buy signals from unusual trading, 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: At the time of publication, the author holds long positions in Costco, Home Depot, and Starbucks, but no positions in SolarEdge or Shake Shack.