by Jason Bodner

October 19, 2021

My kids can drive me nuts.

They walk around like zombies staring at their phones. They seem to live inside Tik Tok, Instagram, Snap Chat, and the other 10 new Apps I don’t know about yet. I’m afraid these devices are rotting their brains.

I could be draconian and limit their access, but then they wouldn’t be socially interacting with all the other kids, and they’d likely just act out or consume this stuff twice as hard when they finally could.

It reminds me of when the British raised taxes on beer in the 17th century, inadvertently making gin the cheapest alcoholic beverage. Everyone guzzled gin, leading to alcoholism. Soon, deaths overtook births.

Whoops!

So, if I condemn what kids crave most, it might bite me in the butt way worse than leaving things alone.

It’s a head scratcher. Who’s with me out there?!

Sound familiar? This dilemma has gone on for generations. When I was a kid, my parents said TV and video games would rot my brain. In turn, my parents were told by their parents that their brains were being melted by telephones and Rock n’ Roll. Their parents were being ruined by radio and jitterbug dancing.

But no one rotted away. And most brains were spared. Whether or not they were good brains is debatable.

Believe it or not, we see the same thing in the stock market, and it can be a tremendous opportunity.

The best news is that this opportunity is happening right now.

I define the opportunity as “outlier stocks.” I define outlier stocks as the ones that tower over all the rest. Think of them as the Tom Bradys, Wayne Gretzkys, Jeff Bezoses, or Warren Buffetts of stocks. They are the best of their class. That’s because over the past 100 years, only 4% of stocks account for 100% of the gains of the entire stock market (above Treasuries), as proven by Professor Hendrik Bessembinder:

Stocks Outperform Treasury Bills Abstract Image

Let me blow that up that highlighted sentence for you:

Highlighted Sentence Image

So why waste time with the other 96%? That’s a great question, and one I asked myself 15 years ago. That’s why I dedicated my professional life since then to finding the outliers. I could write 10,000 pages (I guess I already have) about how to find them, but the quick answer to the question is:

To find Outliers, find stocks with

  • growing sales
  • growing earnings
  • growing profits
  • low debt, and
  • innovative products and services in high demand

The concept may sound simple, even obvious, but the execution is tough. There are thousands of publicly traded companies, and manually analyzing them all is nearly impossible. That’s why I created a computerized system to find them for me. The computer simply filters out everything undesirable to me and leaves me with only the best quality stocks that also see big investor support.

Outlier stocks have all the common traits listed above. But that doesn’t mean they always go up.

And that brings me back to my kids and the British beer tax. News headlines have a big impact on the market. They can drive investor sentiment and temporarily move markets significantly, up or down, so you must beware. In fact, I say there should be a Disney-ride-style warning label on many news stories:

WARNING: THIS SCARY STORY IS WRITTEN TO GET YOUR ATTENTION SO YOU WILL SEE OUR SPONSOR’S ADVERTISMENTS.

PREGNANT WOMEN AND PEOPLE WITH HEART CONDITIONS SHOULD NOT WATCH.

If only this happened! The truth is, more people would watch, so that warning is a good marketing tactic.

When fear grabs hold of investment psyches, it spells doom for the fearful, but opportunity for the greedy.

Growth stocks have been mired in the mud for months. We can thank an endless stream of bad news, like inflation fears, debt ceiling anxiety, oil prices, tax policy, global warming, COVID-19 resurgence, and brain-eating amoebas to name a few. These and other stories pressure great stocks, which will be just fine.

It may feel scary to buy the dip – when Tums sales spike – but it’s often the right thing to do.

Let me show you…

I used my software to find a basket of 10 outliers to see what happened during times of high market stress. These stocks failed to keep up with the S&P 500 for five agonizing months. Then the pandemic hit hard, and the pain got unimaginably worse. The 10-stock basket fell 40% while the SPY fell only -22%.

MapSignals Market Map Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

But then, the market exploded, and our 10 “good” stocks nearly tripled the SPY at their peak:

Ten "Good" Stocks Nearly Tripled the SPY Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

They were phenomenal stocks. Some went up; some went down. Here are their names and track record:

Each Buys Performance Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

SHOP and SEDG nearly tripled in 12 months. SNPS rose 62%. Those three stocks more than made up for all the other winners and the losers too. Over the last 6 months, however, some outlier stocks can’t get out of their own way… until recently, when I’ve noticed buying in these awesome stocks has suddenly returned. And now that sellers have disappeared with fresh buying, it’s lifting the BMI quickly:

MapSignals Big Money Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Last week, 534 stocks made unusually large trading signals. Of those, 366 were buys (69%). Of those, 215 (almost 60%) showed positive 1-year earnings growth and 46 showed both positive sales and earnings growth. I looked through them all and saw some very powerful names that I think will be strong leaders for what’s to come. That leads me to my next point:

We’re past mid-October, so we’re embarking on a seasonally very strong time of year, through January.

There’s waning selling, fresh buying, and strong seasonality, creating wind at our backs.

As far as timing goes, the time to get the best deals is when no one wanted outlier stocks. But now that demand is showing up, it’s also a good time to try and catch a historically strong end-of-year trend.

Timing perfectly is a dream. But as you see above, if you choose stocks well and have patience, timing doesn’t really matter that much. You can sleep at night and weather even the nastiest of storms.

The recipe is to own outlier stocks. 100 years of history shows that’s where to be. Wining every single day is not guaranteed. Occasionally timing will be perfect. Sometimes you will strike out. But take it from the strike-out record holder, Babe Ruth, who also held the home run record for over 50 years:

“Never let the fear of striking out keep you from playing the game.”

Navellier & Associates does not own Synopsys, Inc. (SNPS), Universal Display Corporation (OLED), Shopify Inc. (SHOP), Alteryx, Inc. (AYX), ProPetro Holding Corp. (PUMP), Match Group, Inc. (MTCH), PagSeguro Digital Ltd. (PAGS), and Shake Shack Inc. (SHAK) in managed accounts but does own Paycom Software, Inc. (PAYC), and SolarEdge Technologies, Inc. (SEDG), in a few accounts. Jason Bodner owns Universal Display Corporation (OLED),  and Match Group, Inc. (MTCH), but does not own Synopsys, Inc. (SNPS), Shopify Inc. (SHOP), Paycom Software, Inc. (PAYC), SolarEdge Technologies, Inc. (SEDG), Alteryx, Inc. (AYX), ProPetro Holding Corp. (PUMP), PagSeguro Digital Ltd. (PAGS), and Shake Shack Inc. (SHAK) personally.

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

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Also In This Issue

Global Mail by Ivan Martchev
Bonds Hold the Key to the Stock Market

Sector Spotlight by Jason Bodner
Filter Out the Noise to Find the 4% “Outliers”

View Full Archive
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About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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