TLDR:
In one sentence a TML is an institutional quality stock in a leading industry group with superior fundamentals and technicals. These are monster stocks which over the course of weeks and months increase +100% to +5,000% . These stocks are disruptors which change how we work, live, or play.
TMLs are popular with traders/investors whose methodology is based on the CANSLIM system developed by William O'Neil. He called them Model Book Stocks. Huge winners worth studying to identify common characteristics that they all share O'Neil studied over 1000 model book stocks going back to the 1880s. Many are shown and discussed in these must read books
- How To Make Money in Stocks, William O'Neil
- Monster Stocks: How They Set Up, Run Up, Top and Make You Money , John Boik
- The Lifecycle Trade: How to Win at Trading IPOs and Super Growth Stocks, Eric Krull, Kathy Donnelly, and Kurt Dail
A few Historical Examples from William O'Neil's How To Find & Own America's Greatest Opportunities
Apple 2003 https://imgur.com/2Egn9z5
Netflix 2009 https://imgur.com/BHCtJpo
Home Depot 1982 https://imgur.com/tBU3JgU
Qualcomm 1997 https://imgur.com/oYPItOW
Yahoo 1996 https://imgur.com/ToOxnQJ
So what are the Fundamental characteristics of a TML? You want to see superior:
- Quarterly Sales Growth > 25% YoY
- Quarterly Earnings Growth > 25% YoY
- Pre+After Tax Margins >20% Recent Quarters
- ROE >17%
- Annual Earnings Ests for the next year > 25%
And above all else you want the stock to have a great story- A new and innovative product or service that changes how we work live or play. Not every TML will have all of these criteria, but in general their record should be outstanding with regards to most of them. The higher these values the better. Earnings and Sales growth over 100% YoY is ideal. Annual Estimates for next year over 100% would be exceptional.
TMLs are also often in the Top 20 Industry groups at the times of their runs. The TML is the leader of an overall top group which is riding the tailwinds of changing environments. Recent examples $SE $SHOP $AMZN Retail-Internet and $TSLA $NIO Electric Vehicles (Auto Manufacturers)
Additionally base liquidity is required for these stocks to be institutional quality. Dollar Volume > $30 Million is essential and most should have DV much higher than that. Accumulation by big hedge funds and mutual funds like Fidelity Contrafund are what move the markets. They won't touch a promising stock unless it has liquidity.
Now for Technical (Price Action) Characteristics of TMLs.
They should be:
- Above a Rising 30 Week Moving Average
- Breaking out of a Stage 1 or Stage 2 Base
- Trending above Key Moving Averages (10, 21ema, 50sma)
- Volume and Price contractions within bases
- Up/Down Vol> 1.2
- Huge gaps up on volume after Earning Beat
- And most importantly they must be showing Relative Strength, meaning they are outperforming the vast majority of stocks in the market. This. is. vital.
During corrections and overall market weakness they should be near all time highs, above their longer term moving averages. They should be standing out like a sore thumb and yelling "Buy me". And during Market Uptrends they should be trending above the shorter term moving averages, forming sideways price shelfs during small pullbacks and then breaking out again. Most stay above their 50 SMAs and even 21 emas for extended periods of time.
So how to scan for them:
Use MarketSmith, the IBD Stock Screener, Finviz, or another screener and screen for the fundamental criteria mentioned above combined with the stock over the 200+50 SMA. It's helpful to have multiple screens splitting up the criteria for instance one scan for the earnings and one for sales.
Here is an example Finviz TML Scan: https://imgur.com/a/CzwHdM8
Recent examples to study
$LVGO 2020
$TSLA 2019-2020
$DOCU 2019-2020
$PTON 2020
$SHOP 2016-2020
$AMD 2018
$ZM 2020
Submitted November 07, 2020 at 07:03PM by Rmogo21 https://ift.tt/2Ik6EAQ
