From the Desk of Steve Strazza @Sstrazza
Welcome to the 2 to 100 Club.
As many of you know, something we’ve been working on internally is using various bottom-up tools and scans to complement our top-down approach. It’s really been working for us!
One way we’re doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn’t just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, Salesforce, and myriad others – would have been on this list at some point during their journey to becoming the market behemoths they are today.
When you look at the stocks in our table, you’ll notice we’re only focused on Technology and Growth industry groups such as Software, Semiconductors, Online Retail, Solar, etc.
Then, like any good technician, we filter the list down to those closest to new highs.
This allows the cream of these strong groups to rise to the top and helps streamline our mission to identify technical breakouts in the top-performing stocks.
We made some changes to this scan a while back. Instead of all-time highs, we’re sorting by 52-week highs.
With the severe drawdowns endured by so many growth stocks since last year, all-time highs just aren’t a reality for most of the names on this list right now.
Using 52-week highs will open the door for more stocks and give us more options for finding the best setups.
Here is this week’s list:
*Click to enlarge view
Now let’s dive in and discuss some of our favorite long setups!
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Our first setup today is a $6.4B company that provides mobile voice and data communications services and products.
Here’s Iridium Communications $IRDM:
IRDM has been grinding sideways for nearly two years and is now challenging the upper bounds of its basing formation. Before we get long the stock, we want to see it take out this key level with a decisive upside resolution.
On a relative basis, IRDM has been grinding sideways in a similar base and just recently resolved to fresh all-time highs. This kind of relative strength supports a breakout on absolute terms.
We want to own IRDM if and only if it’s above 55, targeting 69 over the coming 1-3 months.
Our second and last setup today is a $4.6B company that provides electronic manufacturing services.
Here’s Fabrinet $FN:
Fabrinet is a secular leader which is evidenced by the stock’s steady ascent higher on both absolute and relative terms.
The consistent pattern of higher highs and higher lows illustrates that the stock is in a strong uptrend. Notice how orderly the trend has been, with FN consolidating constructively at logical levels of supply along the way.
The relative trend has accelerated throughout 2022 as the stock continues to make fresh highs versus the broader market.
This bullish relative strength supports a breakout on absolute terms and suggests the stock will likely outperform over longer time frames.
We see no signs of this absolute and relative strength slowing down anytime soon.
If we’re above 134, we want to own FN with a target of about 202 over the coming 3-6 months.
That’s the latest scoop on our 2 to 100 Club.
We hope you enjoyed it! Thanks for reading, and please reach out to us with any questions.
Good fishing.