In 2020, shares of Advanced Micro Devices, Inc. (AMD) have gained 20%. The stock has been helped by big institutional demand for the shares. This buying started in November 2019. I actually wrote about this signal in November, and you can read that post here. Shares have jumped 34% since then.
A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and Advanced Micro Devices could be just the opportunity. The stock has been gaining for years. 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 2020, AMD stock has seen strong demand – i.e., big buying. Semiconductor stocks were one of the best performing groups last year.
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 AMD stock has made over the past year. Focusing on December and January, you can see a lot of buy signals (green) throughout the month. What's happening now is big buying rushing in:
Just in 2020, Advanced Micro Devices stock has posted five 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 AMD 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 that grab our attention:
- One-year outperformance vs. market: +107.14% vs. SPDR S&P 500 ETF Trust (SPY)
- One-year outperformance vs. semiconductor ETF: +81.63% 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 that AMD has recently shown top-rated signals for Mapsignals. The following chart is since 2018. The main takeaway is how the signals tend to precede a lift in the share price. We think there is a rush by investors to own the shares:
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, AMD's earnings growth is very strong, and its revenue growth rate is impressive. We believe that the ramp-up in semiconductors will cause the revenue growth rate to remain elevated:
- Three-year revenue growth rate: +16.73%
- Three-year earnings growth rate: +322.08%
Advanced Micro Devices shares are breaking out as the market sits near highs. The company is quietly gaining with demand for its shares. We like the long-term story of the stock. The narrative for AMD and other high-quality semiconductor stocks is one of a growth cycle in the years ahead.
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. All of this points to a long-term opportunity for the stock.
The Bottom Line
Advanced Micro Devices 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 AMD shares at the time of publication.
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