Shares of PulteGroup, Inc. (PHM) have gained 14.18% in 2020. That likely wouldn't be possible without institutions pushing the shares higher. The chart has big money buying written all over it.

The buying in PulteGroup shares is quite recent, and other homebuilder stocks are gaining as well. I actually wrote about PulteGroup stock seeing unusual buying activity in September. You can read that post here. Shares have popped around 25% since then.

A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and PulteGroup 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. Since the fourth quarter of 2019, PulteGroup stock has seen relentless demand – i.e., big buying. The focus looks to be on the next leg higher for the stock. 

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 signals look like, have a look at all of the big money (unusual institutional) signals PulteGroup stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) throughout the year. What's happening now is big buying rushing in:

Chart showing the unusual institutional (UI) buy and sell signals made by PulteGroup, Inc. (PHM)
www.mapsignals.com

Since October, PulteGroup stock has logged eight big money buy signals, indicative of buying in the shares (see chart above). This shows that traders are likely thinking 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 PulteGroup stock is poised for gains. The big money is always looking for an opportunity to buy shares on the cheap. 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. The following are a few areas in which PulteGroup stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +13.67% vs. SPDR S&P 500 ETF Trust (SPY
  • YTD outperformance vs. homebuilder ETF: +9.35% vs. SPDR S&P Homebuilders ETF (XHB)
  • 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 PulteGroup has made many top-rated buy signals for Mapsignals since 2018. The main takeaway is how the green signals tend to precede higher prices. We think a new round of buy signals could be upon us soon:

Chart showing the top-rated buy signals made by PulteGroup, Inc. (PHM)
www.mapsignals.com 

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, PulteGroup's earnings growth is very strong, and its revenue growth rate is impressive. We believe that the ramp in home sales will cause the revenue growth rate to stay elevated:

  • Three-year revenue growth rate: +19.61%
  • Three-year earnings growth rate: +51.81%

PulteGroup shares are breaking out as the homebuilder sector breaks to highs. The company is quietly gaining with demand for its shares. We like the long-term story of the stock. The narrative for PulteGroup is that it's a highly rated homebuilder with growth potential.

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. Top homebuilder stocks have been a strong group recently. All of this points to a long-term opportunity for the stock.

The Bottom Line

PulteGroup stock 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 PulteGroup shares at the time of publication.