Oversold Opportunities in Mid-Cap Stocks

I’m talking about companies with market capitalization of anywhere from $5 billion up to $300 billion. On the lower end, these could be considered small-cap stocks, though they’re still generating billions in revenue.

Nonetheless, these firms are beyond their start-up days. But they’re not global, household names, yet.

Big Money is Pouncing on Oversold Opportunities

The reason these stocks are winning is because Big Money is pouncing on oversold opportunities. Look at the inflows from April 9 to May 7:

Each inflow signal is a discrete company. As the smallest and largest stocks were sold, mid-caps saw Big Money inflows.

This isn’t surprising. Mid-cap breadth has been low. Using the exchange-traded fund iShares Core S&P Mid-Cap ETF (IJH) as a proxy, just 12% of S&P MidCap 400 companies were beating their 200-day moving average not long ago:

But now I’m going to show you how this is actually bullish.

Big Money Betting Big Sums

Using MoneyFlows data, it’s clear that when there’s extraordinarily weak breadth in mid-cap stocks, they tend to rip higher afterwards. Let me show you.

Since 2000, there have been 157 instances of super low mid-cap breadth like this. These stocks flourish after the pain, including returns of more than 50% with hit rates of 100% one and two years later:

And that’s at the index level. The individual companies fueling the index often have even bigger returns.

Let’s return to the idea of each Big Money inflow signal being a discrete company. That reflects Big Money betting big sums on singular stocks.

The MoneyFlows process identifies the ones seeing heavy institutional interest (our Outlier 20 report showcases them weekly). Here are some of the mid-cap stocks seeing Big Money inflows.

One is under-the-radar electronic trading platform Tradeweb Markets, Inc. (TW), which has doubled in a couple of years due to Big Money support:

Another is Halozyme Therapeutics, Inc. (HALO), which is hitting new heights:

And a third is a name you may have heard of before – language learning platform DuoLingo, Inc. (DUOL). Its earnings have been stellar, which sustains the Big Money inflows:

Spot the Inflows Among the Weakness

Even as markets stumble or violently go nowhere, Big Money pounces on opportunities. That’s what MoneyFlows data has been showing for a little while now in mid-cap stocks.

Using the MoneyFlows data and process, you can spot the inflows among the weakness. It helps highlight best-of-breed companies, including the ones that may go on to become household names.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.

Disclosure: the author holds no positions in TW, HALO, or DUOL at the time of publication.