Scott Bennett of Invest with Rules joined the Investing with IBD podcast this week to discuss how he uses institutional support to screen top growth stocks and establish sell rules. Plus, we take a look at several stock ideas that are seeing an uptick in institutional buying: Fivserv (FISV), Royalty Pharma (RPRX) and Upstart Holdings (UPST). UPST stock and FISV stock have seen recent price gains as financial stocks bounce back in the Covid economic recovery.
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UPST Stock Gets Boost From Economic Recovery
Stocks extended their gains in the stock market today as the Dow Jones and S&P 500 hit new intraday highs Thursday. Investors reacted to positive jobless claims data and the passage of a $1.9 trillion stimulus bill.
The Nasdaq also outperformed as tech stocks rebounded thanks to a stabilization in Treasury yield rates. That index was up 2.8% in midday action Thursday to trade at its 50-day moving average. The tech heavy index has taken a hit over the past month as sector rotation has moved trading action away from tech into cyclicals tied to economic recovery.
“The market really changed character at the end of last year,” Bennett said. “It looked to me like a rotation from large cap to small cap, from tech to financials and energy materials. And it looks like that is still continuing.”
The Dow Jones Industrial Average was on pace to extend gains for the fifth straight day. That index hit a record high on Thursday after jumping more than 2.5% in early trading action. The S&P also rallied to new highs as strong energy and financial stock price action have pushed that index higher.
UPST stock and FISV stock are two fintech names benefiting from the recent economic recovery. UPST stock gained more than 13% this week, reversing a sharp sell-off that started in mid-February. FISV stock, a top payment stock that earned a spot on the IBD 50 stock list last year, powered above a buy point today after weeks of consolidation.
Screening Stocks Using Institutional Sponsorship
Bennett also explained his stock screening approaching using institutional buying and sponsorship. He uses this CAN SLIM principle to identify emerging themes and stocks to watch that are catching the attention of institutional investors like fund managers, banks and pension funds. Investors can also use IBD’s Stocks On The Move list to monitor institutional buying and selling in the market.
“My first rule is you have to buy what the billion dollar fund managers are buying,” Bennett said. “You can’t go against the tidal wave of money.”
He added that institutional funds can also provide signals of when to sell a stock. “I sell what they’re selling,” Bennett said of spotting early sell signals from large funds. “They have so much institutional capital, that it takes them a long time to get in and a long time to get out.”
Listen to the full podcast to hear Bennett explain how he uses institutional buying to screen top growth stocks.
Covid Reopening Stock Plays
Finally, Bennett offered three Covid reopening plays that have seen an increase in institutional buying: UPST stock, FISV stock and Royalty Pharma stock.
Recent IPO Upstart is on Bennett’s watchlist. The fintech firm provides cloud-based AI consumer lending technology to financial firms. Upstart stock made its Nasdaq debut on Dec. 16 at 20 per share. UPST shares skyrocketed 428% to peak at a high of 105.58 on Feb. 12.
UPST stock then fell back to earth with a sharp sell-off in mid-February as tech stocks were pummeled in the overall market. Shares hit a low of 42.51 on Mar. 5. But UPST stock is reversing its downtrend with an 11% gain this week.
“It’s a little bit more of an expensive stock,” Bennett said of UPST stock’s recent pullback. He added that Upstart’s rising relative strength and triple-digit earnings growth also bode well for the company’s future performance.
“Eventually, they’re probably going to get more into the auto space and most likely into the mortgage space,” Bennett said. “So they might have a way that justifies the price point.”
Another fintech name on Bennett’s watchlist is FISV stock. Shares of the payments company powered above a 121.93 buy point earlier this week and are still in range. FISV stock’s buy zone extends to 127.93. The company also outperformed the overall market last month with a 12% gain in February.
Bennett says Fiserv’s acquisition of the Clover restaurant payments platform has delivered reliable growth for the company. “They’re growing about 37% on the Clover product,” he said. “And they’re trading at about 1/10 the valuation of Square (SQ).”
Another bullish signal? FISV stock institutional buys are above the 600 million-share threshold and show rising relative strength.
Royalty Pharma Stock
Finally, Bennett analyzed recent IPO Royalty Pharma stock as another Covid reopening play for investors’ watchlists. Bennett says that Royalty Pharma is a health care hedge fund that invests in late-stage clinical trials for high-growth biotech names like AbbVie (ABBV), Gilead Sciences (GILD) and Biogen (BIIB).
“They actually cherry pick the specific products within the company,” Bennett said of Royalty Pharma’s portfolio. He added that although earnings have lagged because of recent acquisitions, the company’s sales have increased over the past three quarters.
Royalty Pharma made its Nasdaq debut on June 16 at 28 per share. Shares then formed a wide cup-with-handle base with a 53.33 buy point. Bennett also points out that institutional funds like Fidelity and Janus hold positions in Royalty Pharma stock.
“It’s in a lot of people’s portfolios because it has a little bit of a defensive feel but gives you exposure to the biotech sector,” Bennett said.
Interested In UPST Stock And FISV Stock?
Will fintech stocks make a comeback? We can’t predict the future, but its never a bad time to update your watchlist with the next top stocks primed to make big moves. Checking out IBD’s Stock Lists page is a great place to start. To get IBD’s real-time assessment of names like UPST stock and FISV stock, check out IBD’s Stock Checkup page.
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