A souring stock market doesn't mean investors are locked out of stealth rallies, market wizard Mark Minervini says. The key is to look at how stocks like Insmed and Meta stock have performed in the past, and use those traits to follow the money even when markets are underperforming.
"Money has to find a hole," Mark Minervini, founder of Minervini Private Access, told Investor's Business Daily's "Investing with IBD" podcast. "Money never sleeps, as Gordon Gekko said, it moves around, it finds a home."
Despite dramatic swings in broader markets and indexes, several smaller stocks are setting up. Minervini says finding them is a matter of following where those flows lead — while keeping to your trading rules. The historical action seen on previous successes like Insmed stock and Meta stock provides key clues.
Finding Relative Strength In Insmed Stock
Minervini says his first cutoff in assessing a stock is its relative strength, especially if the market is in a downtrend. He focuses on stocks with a high relative strength.
"If it doesn't have the RS, it doesn't matter to me what the numbers are — it can have 500% earnings this quarter and sales and everything looks great, but if it doesn't have that relative strength, I'm not even going to be interested in it."
Minervini points to biotech stock Insmed, with an RS Rating of 99. He says stocks with this type of alpha and relative strength tend to be in their own cycle, driven by something bigger than the general market.
He warns such stocks are often uncorrelated to the broader market, and can often shake out investors who don't understand this. "When the Dow goes up and your stocks aren't doing anything, that's when people go 'oh, this doesn't work,' and they abandon the strategy," said Minervini. "No, that's precisely what it's supposed to be doing."
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The Bigger The Stock, The Better
Minervini points to industry groups and determining the best stocks in any given industry. Big groups can often have hundreds of large companies, making it difficult to pin down a few performers. But Minervini says in most groups it can be narrowed down to two or three stocks that are key leaders. "If I said to you 'hamburgers,' what would you say?" said Minervini. "Probably McDonald's, right? Right away."
He says it's easy in many industries to pin down the best merchandise, service or product, the first move in finding performing stocks. Stocks that show existing performance are appropriate for a 'buy high, sell higher' strategy like the IBD Methodology.
"You're looking for those really, really great companies, especially if you're going for the bigger move," he said.
Finding The Uptrend In Meta Stock
Minervini says Facebook, now Meta Platforms, is an example of a class-leading high performer — but that it wasn't always the best in its category. He says that in its market debut, Meta was not yet a buyable stock. Shares originally fell after the stock began trading, climbing only after later earnings reports proved the social media giant's base of users was monetizable.
"At the time, there was very little competition in anybody doing what they were doing," he said, referring to Meta's efforts in social media advertising. Buying a stock like Meta when it was climbing still provides investors with returns, along with the added safety of buying into something that's in an uptrend.
Minervini says he isn't bothered about not buying Meta at its lows. "The real money is after that, in the new high ground."
Tap here to learn how to find the stealth rally.
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