Have you ever found yourself saying a stock is too expensive because it’s made a big move in a short period of time? Or that a stock is too cheap to ignore because its price has fallen sharply? Anchoring bias, or the tendency to fixate on a past price when considering a new investment idea, can significantly hold back your returns because it can cause you to avoid top-performing stocks and mistakenly, invest in impaired businesses.

A better option is to focus on businesses, rather than stock prices relative to past price points. Using a system, such as our service, to identify stocks likely to outperform and then, considering if the business itself will enjoy tailwinds or face headwinds can help you pack your watch list with winners.

And this type of stock picking is increasingly important because the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) is currently trading in no man’s land, an area between 5% below and 5% above its 200-day moving average (DMA).

It’s at points like this markets can become volatile, more selective, and tougher to decipher as a tug-of-war between buyers who missed the move and sellers that are using resistance to lock in gains develops.

In short, we’re in a period of greater uncertainty. The current rally could stall or make another leg higher and good arguments can be made for both.

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Economic data is undeniably bad. Many businesses are closing and jobs are permanently disappearing and that could finally trump the monetary and fiscal intervention that’s propped the market up the past two months. Alternatively, there’s significant pent-up demand from investors who shifted assets into money markets that could propel the S&P 500 higher.

Unfortunately, our long-term overbought/oversold indicator isn’t as much help now as it was at March’s low or January’s peak. Currently, 23% of our 1,500 stock universe is trading above its 200 DMA and that’s neither too low nor too high to draw any actionable conclusions. Historically, a reading above 30% can indicate it’s time to start reining in margin and a reading of 40% or higher can suggest raising cash is wise. For example, in the 2018 bottom and recovery, the indicator took a breather in the low 30% range in February 2019. If we reach those levels, we’ll let members know, but for now, focusing on the top sectors and stocks is smart.

The best sectors now

Our system ranks major market sectors and industries by market cap weekly by aggregating individual stock scores. Our system is explained more here, but to paraphrase, it incorporates:

  • Forward earnings growth expectations,
  • Historical trends in reporting earnings that beat Wall Street estimates,
  • Insider buying,
  • Short-term and long-term institutional money flow,
  • Forward valuation relative to historical valuation,
  • Contra-trend short interest analysis, and
  • Quarterly seasonality over the past decade.

Currently, the best large-cap sectors are healthcare, technology, and services. Technology, consumer goods, healthcare, utilities, and services are top-rated in mid-cap, while healthcare, technology, and financials offer upside in small cap.

Source: Top Stocks for Tomorrow.

The top stocks to buy

Stocks follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme, so our system can be a great source of top stock ideas.

Last week, we shared over 80 stock ideas with members, including the following top scoring stocks within these select sectors.

BEST SCORING 5/28/2020 4 WEEK MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BASICS
Agnico Eagle Mines Limited (AEM) BASIC MATERIALS GOLD 95 98.75
The Sherwin-Williams Company (SHW) BASIC MATERIALS SPECIALTY CHEMICALS 90 77.5
Ecolab Inc. (ECL) BASIC MATERIALS SPECIALTY CHEMICALS 85 76.25
CONSUMER GOODS
The Hain Celestial Group, Inc. (HAIN) CONSUMER GOODS PACKAGED FOODS 105 100
Pool Corporation (POOL) CONSUMER GOODS LEISURE 95 90
McCormick & Company, Incorporated (MKC) CONSUMER GOODS PACKAGED FOODS 90 82.5
Monster Beverage Corporation (MNST) CONSUMER GOODS BEVERAGES 90 82.5
Polaris Inc. (PII) CONSUMER GOODS RECREATIONAL VEHICLES 85 80
ENERGY
Cabot Oil & Gas Corporation (COG) ENERGY OIL & GAS E&P 105 101.25
EQT Corporation (EQT) ENERGY OIL & GAS E&P 85 82.5
FINANCIALS
eHealth, Inc. (EHTH) FINANCIALS INSURANCE BROKERS 95 87.5
Goosehead Insurance (GSHD) FINANCIALS INSURANCE-DIVERSIFIED 95 93.75
PayPal Holdings, Inc. (PYPL) FINANCIALS CREDIT SERVICES 95 96.25
Moody’s Corporation (MCO) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 90 87.5
MSCI Inc. (MSCI) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 90 92.5
HEALTHCARE
Medpace Holdings, Inc. (MEDP) HEALTHCARE DIAGNOSTICS & RESEARCH 110 97.5
AbbVie Inc. (ABBV) HEALTHCARE DRUG MANUFACTURERS 100 90
Quest Diagnostics Incorporated (DGX) HEALTHCARE DIAGNOSTICS & RESEARCH 100 98.75
Illumina, Inc. (ILMN) HEALTHCARE DIAGNOSTICS & RESEARCH 100 86.25
Ligand Pharmaceuticals Incorporated (LGND) HEALTHCARE BIOTECHNOLOGY 100 91.25
Repligen Corporation (RGEN) HEALTHCARE BIOTECHNOLOGY 100 96.25
Sarepta Therapeutics, Inc. (SRPT) HEALTHCARE BIOTECHNOLOGY 100 92.5
AstraZeneca PLC (AZN) HEALTHCARE DRUG MANUFACTURERS 95 93.75
Chemed Corporation (CHE) HEALTHCARE HOME HEALTH CARE 95 82.5
Addus HomeCare Corporation (ADUS) HEALTHCARE HOME HEALTH CARE 95 72.5
DexCom, Inc. (DXCM) HEALTHCARE DIAGNOSTICS & RESEARCH 95 98.75
Inspire Medical Systems, Inc. (INSP) HEALTHCARE MEDICAL DEVICES 95 80
Molina Healthcare, Inc. (MOH) HEALTHCARE HEALTHCARE PLANS 95 95
Neurocrine Biosciences, Inc. (NBIX) HEALTHCARE BIOTECHNOLOGY 95 80
Veeva Systems Inc. (VEEV) HEALTHCARE HEALTH INFORMATION SERVICES 95 93.75
Vertex Pharmaceuticals Incorporated (VRTX) HEALTHCARE BIOTECHNOLOGY 95 97.5
INDUSTRIALS
Old Dominion Freight Line, Inc. (ODFL) INDUSTRIALS TRUCKING 105 103.75
Marten Transport, Ltd. (MRTN) INDUSTRIALS TRUCKING 100 98.75
Sturm, Ruger & Company, Inc. (RGR) INDUSTRIALS AEROSPACE & DEFENSE 90 87.5
Saia, Inc. (SAIA) INDUSTRIALS TRUCKING 90 81.25
Siteone Landscape Supply (SITE) INDUSTRIALS INDUSTRIAL DISTRIBUTION 90 81.25
REITs
CyrusOne Inc. (CONE) REITs REIT-SPECIALTY 95 92.5
American Tower Corporation (REIT) (AMT) REITs REITs-SPECIALTY 95 80
Safehold Inc. (SAFE) REITs REIT-DIVERSIFIED 95 93.75
CoStar Group, Inc. (CSGP) REITs REAL ESTATE SERVICES 90 88.75
QTS Realty Trust, Inc. (QTS) REITs REIT-INDUSTRIAL 85 86.25
Equinix, Inc. (REIT) (EQIX) REITs REIT-SPECIALTY 85 82.5
SERVICES
Chegg, Inc. (CHGG) SERVICES EDUCATION & TRAINING SERVICES 105 105
Stitch Fix, Inc. (SFIX) SERVICES SPECIALTY RETAIL 100 75
Strategic Education, Inc. (STRA) SERVICES EDUCATION & TRAINING SERVICES 95 90
Dollar General Corporation (DG) SERVICES DISCOUNT STORES 95 97.5
Electronic Arts Inc. (EA) SERVICES ELECTRONIC GAMING & MULTIMEDIA 95 95
Lululemon Athletica Inc. (LULU) SERVICES APPAREL RETAIL 95 88.75
MercadoLibre, Inc. (MELI) SERVICES INTERNET RETAIL 95 88.75
Netflix, Inc. (NFLX) SERVICES ENTERTAINMENT 95 98.75
Ollie’s Bargain Outlet Holdings, Inc. (OLLI) SERVICES DISCOUNT STORES 95 93.75
Tractor Supply Company (TSCO) SERVICES SPECIALTY RETAIL 90 88.75
Activision Blizzard, Inc. (ATVI) SERVICES ELECTRONIC GAMING & MULTIMEDIA 90 91.25
Churchill Downs (CHDN) SERVICES GAMBLING 90 82.5
Amazon.com, Inc. (AMZN) SERVICES INTERNET RETAIL 90 88.75
Etsy, Inc. (ETSY) SERVICES INTERNET RETAIL 90 93.75
TECHNOLOGY
Coupa Software Incorporated (COUP) TECHNOLOGY SOFTWARE-APPLICATION 105 102.5
salesforce.com, inc. (CRM) TECHNOLOGY SOFTWARE-APPLICATION 105 97.5
HubSpot, Inc. (HUBS) TECHNOLOGY SOFTWARE-APPLICATION 105 96.25
Zillow Group, Inc. (Z) TECHNOLOGY INTERNET CONTENT & INFORMATION 105 97.5
CoreLogic, Inc. (CLGX) TECHNOLOGY INFORMATION TECHNOLOGY SERVICES 100 93.75
Adobe Inc. (ADBE) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 100
Alarm.com Holdings, Inc. (ALRM) TECHNOLOGY SOFTWARE-APPLICATION 100 88.75
Appian Corporation (APPN) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 92.5
Avalara, Inc. (AVLR) TECHNOLOGY SOFTWARE-APPLICATION 100 97.5
Alteryx, Inc. (AYX) TECHNOLOGY SOFTWARE-APPLICATION 100 92.5
EverQuote (EVER) TECHNOLOGY INTERNET CONTENT & INFORMATION 100 97.5
Globant S.A. (GLOB) TECHNOLOGY SOFTWARE-APPLICATION 100 97.5
Manhattan Associates, Inc. (MANH) TECHNOLOGY SOFTWARE-APPLICATION 100 81.25
MongoDB, Inc. (MDB) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 98.75
Match Group, Inc. (MTCH) TECHNOLOGY INTERNET CONTENT & INFORMATION 100 92.5
New Relic, Inc. (NEWR) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 83.75
ServiceNow, Inc. (NOW) TECHNOLOGY SOFTWARE-APPLICATION 100 98.75
Qualys, Inc. (QLYS) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 100 98.75
Smartsheet Inc. (SMAR) TECHNOLOGY SOFTWARE-APPLICATION 100 98.75
Twilio Inc. (TWLO) TECHNOLOGY INTERNET CONTENT & INFORMATION 100 93.75
Zillow Group, Inc. (ZG) TECHNOLOGY INTERNET CONTENT & INFORMATION 100 92.5
UTILITIES
TerraForm Power (TERP) UTILITIES UTILITIES-INDEPENDENT POWER PRODUCERS 90 87.5
Dominion Energy, Inc. (D) UTILITIES UTILITIES-DIVERSIFIED 85 81.25


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Disclosure: I am/we are long MNST, PYPL, ILMN, DXCM, INSP, VRTX, EA, NFLX, AMZN, CRM, AYX, MDB, NOW, SMAR, TWLO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.