A gain of approximately 60% in 2019 for shares of Lam Research Corporation (LRCX) tells of story of big demand for the shares. This demand is very unusual and has been very consistent in 2019. It's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. I wrote an article about Lam Research stock back in April, which you can see here. The shares are up nearly 12% since then.

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, Lam Research stock has seen monster 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 big money activity signals look like, have a look at all of the big money (unusual institutional) signals Lam Research 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 likeliest candidates heading higher. We want an edge. Stocks move based on supply and demand. This is a chart showing big demand:

Image showing the unusual institutional (UI) signals made by Lam Research Corporation (LRCX)
www.mapsignals.com

So far in 2019, Lam Research stock has logged 12 unusually high-volume days, indicative of buying in the shares (see chart above). This demand can quietly lift shares. This has been happening quite a bit recently. These data points suggest that big money 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 seeing outsized buying. 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 big money buying (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 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 Lam Research stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +40.84% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. semiconductor group: +29.23% vs. VanEck Vectors Semiconductor ETF (SMH)
  • 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 the historical times since 2015 when Lam Research stock made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. What jumps out in the chart below is how Lam Research has consistently been a top-rated stock with big buying:

Chart showing the top-rated buy signals made by Lam Research Corporation (LRCX)
www.mapsignals.com


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, Lam Research's latest earnings report showed a quarter-over-quarter (QoQ) improvement in margins:

  • Q4 2019 QoQ gross margin change: +180 basis points
  • Q4 2019 QoQ operating income as % of revenue change: +290 basis points

Lam Research shares are breaking out to highs with big demand. The company is doing well technically and fundamentally. It appears that big money is taking notice.

We like the long-term story of the stock. The narrative for Lam Research and other high-quality semiconductor stocks is that the worst is likely behind the industry. Returning to growth could be around the corner. We are always on the lookout for companies showing big buy activity in the shares. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

Lam Research stock is breaking out quietly. Our big buying indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the lift in price, big buy demand, and healthy fundamentals, this stock could be worth a spot in a growth-oriented portfolio. 

Disclosure: The author holds a long position in Lam Research shares at the time of publication.