O'Neil Protege David Ryan Reveals Trick To Picking Top Stocks

investing with IBD is brought to you by Alliance Bernstein a global investment manager offering active flexible solutions across asset classes ap has the tools and expertise investors need to get their portfolios ready to navigate late cycle investing to find out more visit a be funds calm okay everybody welcome to investing with IBD for May 22nd 2019 I'm your host Arusha Pierce and today we have another special guest we have david ryan former o'neill portfolio manager 3-time us investing champion and market wizard thanks Dave for being on here Arusha thank you for having me it's it's always a pleasure on today's podcast we're going to talk about the markets post analysis and we're gonna end the podcast with some current stocks including some stocks that David is watching personally okay so let's get into the market so the market is in correction right now of course we had a really strong move from the bottom so we were due for some kind of pullback but leading stocks that's leading stocks are still hanging in there but it's getting a little bit more narrow yeah there's we've lost some individual stocks that were leaders we've even lost a leading group the semiconductor index and 70 semiconductor stocks like Xilinx really broke and broke hard and so you're losing some of your leadership and to me that just tells you you got to get a little bit more cautious you have to maybe come off a margin and and just really focus on those that are working and be very very selective now David let's go into this a little bit more because if you take a little bit longer term view maybe back a couple of years you mentioned something interesting about the the markets of being sideways yeah well if you if you just look at the S&P 500 it hit a high in January of 2018 and we did made just a tiny bit higher high in September October last year and then little bit higher high but if you look at it if you just draw a line across the high from January of 2018 we really haven't gone anywhere and so we've it's just really been a sideways market and I think what people have to come to realize is that there are times where the market can go sideways for years and I mean I I looked back and you can do this on on Market Smith there have been about five or six times since the early in early 1900s where the market has gone sideways for over six to seven years there have been periods where I mean even 1966 to 1982 the market went sideways for 12 and a half years and so I think what might be happening is that passive investing with indexes has been so much in vogue in the last you know over the last nine years that it might start switching where you're really going to have to pick individual stocks to outperform the market you know maybe some of your market money can be in indexes but I think the the tools that IBD has and markets miss can help you find some of the leaders and some of the great winning stocks yeah and you know and there are some really good even if it is a sideways market there are some great opportunities if you know how to pick those stocks and really manage them well yeah yeah and even during that period I talked about 66 through 82 there were a lot of great growth stocks that had huge moves that's when Walmart started its move in the 70s and a stock that we're going to talk about later pick and save started in the the later 80s and and had a 4-fold move so they're they're out there and I you know I use this quote from guest Jim Cramer who says there's a bull market somewhere and so it there always is and you just have to really sort through and find what areas are working ok so let's take a little bit deeper just in the overall market how you develop a feel for the market because there's some other kind of indicators you look at to help you gauge the market environment yeah a lot of my my stance on the market from looking at hundreds of individual stocks every week and I go through a number of lists that either created on market Smith or screens that I've developed and I just go through one after another and a lot of it comes down to can I find stocks that are setting up do I see a stocks a lot of stocks that are rolling over and if I do then I I just constantly adjust with what I'm seeing in the individual stocks I do pay attention to the indexes but you shouldn't get so over focused on the indexes that you lose sight of individual stocks that could be starting a new move so it's a combination of of an overall general market looking at the indexes looking at individual stocks and then I do look at a few indicators like advanced decline lines to see what kind of liquidity is in the market how many stocks are moving and right now it's telling me that we're kind of in a and we're still in a positive zone but we're losing a little liquidity and we're markets just narrowing yeah and it seems like really the the one growth area or software stocks but everything else like you mentioned before semiconductors they're storing there they've fallen off right so so we keep losing those leaders but those software stocks still they still hang in there yeah they're hanging in there some of the other sectors I'm seeing that shouldn't be acting so well utilities are starting to go into into new highs and that tells you people are getting a little bit more defensive and rates are dropping and that's that's helping the utilities but then the transportation index which is usually strong in a very very good economy that's starting to roll over so you got a few weakening signs out there but I don't think it's we're yet to the point where you know you really have to come completely out of the market there are individual stocks that are working now let's let's take it a little bit more another concept I think just or just general investing because these days with technology you're so connected to the market that everyone has a tendency to look at daily charts or even intraday charts and what do you think about that well it's it's very interesting when I I came to O'Neill & Company in 1982 and I had been kind of raised on their daily graph charts so I was focused on daily graphs and and and during the 16 years that I was at the company and I worked with Bill he rarely ever looked at daily daily charts he was focused more on the weekly and the weekly tens if you look at the weekly it tends to you you don't see you lose some of the the the int the intraday and the daily fluctuations or the fluctuations during a week that could sometimes shake you out so I think it's it's good to always go back and forth and really I'm spending more time on the big picture and looking at the weekly charts then then focusing on the you know intraday 5-minute charts Minh get lost in those things I mean it is also amazing even just intro week where on Monday and Tuesday they'll hit these stocks really hard you know scare you out but then by the end of the week they bring them right back up and then on a weekly chart it looks like just another week I know you start going what did I why did I sell that thing out right I'm an idiot yeah okay so the market is still in a correction but remember we could have a follow-through day at any time so you always want to keep that watchlist fresh you know David talked about he's looking at a hundreds and hundreds of stocks over the weekend that's the way to do it that's really the way to get a feel for the market so let's take a quick break but when we're gonna reach when we return we're gonna talk about two key things that you need to add to your analysis process to become a better investor so stay tuned hey guys Arusha from investing with IBD here the global economic cycle is moving into its later stages creating a less favourable mix of growth and inflation central banks aren't providing as much fuel to keep things moving either and market volatility has come back in a big way all of this makes investing a lot more challenging today Alliance Bernstein can help a be is a global investment manager with the tools and expertise to get portfolios ready for a more difficult path ahead that means finding stocks from companies that are able to deliver quality growth over time adding downside protection against market downturns is critical too and even though interest rates are rising investors shouldn't avoid duration in their fixed income exposure the bottom line investments will have to work harder to generate long term returns but that shouldn't mean that investors have to struggle to find answers a B offers actively managed flexible investment solutions across asset classes it's what you need to adapt your portfolio for late cycle investing to find out more visit a B funds com we're back with David Ryan on investing with IBD and let's talk about two key things that everyone needs to add to their analysis process the first is by what you know so David let's go into this concept because this is a really important concept yeah so many people I think they try to make the market there they think the market is so complex and it's really is is is easy or I don't want to say easy but the most important thing is is look at your own life you can get so many stock ideas from just what you're buying where are you eating what what restaurants are you going out to what clothes are you are you buying what are your friends talking about just from from examining your own life you can come up with unbelievable great investing ideas I mean just look at the phone that you you were probably using that's it's probably an iPhone and it's stock has had a phenomenal move over the last ten years or have you been to a you know a Chipotle Mexican restaurant right there's another stock that said that it had a big move so it means things are all over the place because look at it this way you're gonna be buying probably the best product for the lowest price and you're probably going to tell other people about it and so right there you're you're making a great decision on what I well is what is the company behind it doing do they have all these characteristics that's what you have to go to next do they have a lot of these canceling characteristics and right there you might just happen upon a great investment opportunity yeah so while you're buying your iPhone in 2007 when when it first came out you could have bought the stock and done extremely well so it's it's you kind of have to put it's like a puzzle it's a game you're trying to put all these pieces together and sometimes you come up with some great great investment opportunities yeah and but I'm buying what you know I really I think the big thing is it helps you build that conviction right you can truly understand why they're earning that money why they're selling like crazy as opposed if like if I see like a chemical stock having huge earnings in sales and it's because of some distillation process it's hard for me to understand yeah yeah and then there's I mean there's so many tech companies or biotech companies were I mean you need an advanced degree to understand some of their products yeah whereas there are still a lot of retailers there are a lot of companies that you can be buying in the market where you can understand them because you're buying their products now from but from from there you want to check in a little bit and a little bit deeper right cancel em characteristics is good you can go to their website you can listen to conference calls you can get some great information through the internet and just get a little a little bit more depth but as you just mentioned it it gives you a little bit more holding power and I'm not saying you have to you know hold an entire position through the whole through an entire move even through major Corrections and you can always trade around positions but it just gives you a little bit more insight and confidence in the stock that you're holding that that it can go farther than it has yeah and you know when you were on one of our Weber webinars for market Smith you brought up one stock that went on a pretty good run controlled data and this was a product that you were using and so you could relate to and that's really how you discovered that company right you pulled it up in market Smith and said hey you know these guys are doing pretty well yeah it's it was a it's a system that you can use for entertainment within your home and controlling this to all the speakers and the music and integrating at all and yeah that helped me find that stock but at some point the stock started rolling over the earnings started slowing down and so I sold out of the stock and then I mean it had a nice move but it went from 37 all the way down into the you know down to 16 dollars a share but I was out long before that drop but that's an example of a here's a product that I thought was very very good and can be able to control from my iPhone and and it turned out to be a nice investment yeah and and that that take a simple ctrl and is actually controlled for corporation yeah I got that and they just recently got taken over a couple weeks ago yeah but that that's a great example there I mean I remember I the way I stumbled on Tesla years ago is cuz I saw their car and I'm 3rd Street Promenade they had a showroom there and I thought my god this them the nicest looking car very seen and they're selling like crazy and it's a $90,000 car right right so it's a but these ideas they're all over the place and you just talk to your friends talk to your family and you're gonna come up with some great investment ideas so let's go to the the second key thing that we all need to know to become a better investor and this is a harder one this is a post analysis so let's go into this David well the post analysis is is this is probably the most important thing that you can do to improve your investment results because once you you know the IBD market Smith they lay out everything what you should be looking for what stocks that are acting well they you know have you focus on the companies with the best earnings and the best relative strengths and once you know what to do in the market a lot of it just comes down to you against yourself the market you can figure you can find individual stocks but it's it's really what are you doing in your investing that's holding you back from big gains and so that's why it's important when you're buying a stock to to screenshot the chart and put it in a file and maybe write down notes of why you bought the stock and then after you sell it go back and see why did you especially why did you lose money what was your mistake were you buying an extended stock or were you buying a stock that just didn't have the great earnings I did this I started at oniel in 1982 and I it was right at the start of a huge bull market I had a great move in my account I doubled my account and then I think I took an account from about 26,000 to over $50,000 but then that was in about a six month period of time but then I lost everything back and finally I was so disgusted I took an entire weekend and I went through every stock that I'd bought and and sold and I wanted to see was there a pattern what was I doing wrong why did I lose all this back and I discovered I was buying extended stocks I'd buy a stock that the breakout point was thirty I was buying it at thirty five and I finally got to the point where I said that's it I don't care what anything else looks like I'm buying the stocks right when they're coming out of the base and I'm I don't and that's when I'm gonna focus on and do that one thing right and that's when I turned around my results and I started doing extremely well and so that's something that I learned but maybe there's something that that you're doing differently maybe you're selling is off but that's how you can really improve your results by analyzing really analyzing yourself and what you do in the market and and a lot of times it's just one or two small adjustments yeah it doesn't take a lot and and the results are that that much greater yeah but but the hardest thing about it is that you have to go and look at your mistakes which is awful yeah I know who wants to go and admit they're wrong and see when they were wrong and too many people you get caught up with their egos and they think oh I'm always right or I should but you have to walk in with a very low eagle and and and and just analyze what you've the mistakes that you made yep now as painful as it is you know host analysis is key to improving as an investor now after the break we're gonna take talk about a company that is Amazon proof and is all about treasure hunting so stay tuned want to find stocks like the ones on this podcast a lot of the best names we talk about come from I be DS exclusive stock lists like the IBD 50 and the big cap 20 whatever type of investor you are we got a list for you you can access every one of ib DS lists plus stock ratings exclusive analysis and one-on-one coaching with a membership to IBD digital it costs less than a dollar a day but for podcast listeners we're offering an even better price go to investors comm slash podcast offer right now and get your first two months for only $20 we're back with david ryan and let's get into current stocks and the let's start off with the first one and this is a company that turns shopping into a treasure hunt and so I'm talking about Ali's bargain outlet and this is a favorite of David's well it's it's a favorite because I've done well in the stock and I think that one of the first times I've I came over here to do something like this I mentioned this stock setting up nicely and or it's starting it's move and this is always bargain outlet and it's bid really basically mostly east of the east of the Mississippi I guess there's some stores now in Texas but there's there's none of these anywhere in California and the stock started coming out in March of 2016 came out of a cup and handle at about twenty three dollars a share and then it had a 4-fold move to ninety seven up through October of 2018 and now it's gone through it went through a thirty nine percent correction and went sideways for eight months and now it's recently gone to new highs but the earnings just keep on coming through the sales keep on coming through the important thing here is that I got to you know it had all the canceling characteristics and then I did some more research I started listening to their conference calls and it just one little tidbit stuck out back in that 2016 period where the CEO at the time said we have we have never closed just a store in 30 years it's amazing and to me that just tells me that they know how to pick locations they know how to operate their company and they're doing something extremely right so that's one that I got a board the other the other thing interesting is that I think I mentioned at the same time I think bill one of the bills biggest stocks that that he invested it back in in 1979 was pick and save pick and save very similar concept where they have closeouts overruns and that's what they stock there their entire stores and the reason why Ollie's and pic and stave it's it's a treasure hunters because you don't know what's gonna what's gonna show up or what's gonna be in there every week from week to week yeah you know like when Toys R Us went out of business they got a lot of a lot of their over there toys that they could sell or the stores that we're closing so so that's that's kind of the treasure hunt part of it yeah and and so it pick and save had it's very interesting when I went to really compare the to pick and save in 1979 through 1983 also it had an 18-week cup and handle and then it had a 4-fold move out of that out of that cup and handle that first cup and handle and there were about four places that you could have added to the stock over the next over the next few years before it went into a one-year correction yeah and it actually started correcting it split three for one stock went into a correction for a year and then and and pulled back but that was also during a period where the market was going it was actually correcting and going down so it just started going sideways and then in September 1982 it actually broke out again and had another hundred and fifty fifty percent move it went from 19 to 50 so the comparisons between the two companies are very very interesting and and I'm thinking that Ali's got far to go because it's a regional story that's turning into a national story and they've got a lot more territory and a lot more locations to to to open and the other thing about weird you might have said it's Amazon proof well they're dealing with closeouts and overruns and things like that and these are things that that Amazon is not going to be competing against so I really like the company you know it recently went in a new high ground if the market gets you know volatile and back and forth it's probably going to have to go sideways but the the comparisons it it's a similar business and it's just doing it you know 20 30 years later and it's in and and it's it's something that you know you can look to as as a possible investment going forward well the last thing too is that even though the stock broke out in all the way back in March of 2016 it had a number of buying points another spots where if you missed the first move you could have gotten the second move you know if you missed the second you could have got the third and even the fourth so even you know that's I in the long ago I said you know sometimes I just let I see what stocks double in the market and then I wait for that next base and I get the next double yeah and and so now this is and this is one that okay so you came on the markets with the webinar I think it was in January 2017 and this was the stock that you spoke about that that it was around $30 at that point right it was a little bit more than $30 coming out of a really nice couple of handle and during that whole time really pretty much this is this whole time you've been holding at least some shares of Olli and it goes back to the buy what you know you went to some of the stores you started to get the concept you listen to the conference calls and I give you the conviction that hey let me just keep holding some of those shares right the for the the the first time I knew they had a location in a place where I was traveling down a murder Beach I I just made a point of going there to to walk through the store buy their products even becoming one of part of Ali's army and that's like a reward yeah rewards you know rewards program if you shop there enough so and then every year when I go back down to Myrtle Myrtle Beach I go through the store again to see has anything changed what is anything different are they still operating the same way so I mean it's it's just doing channel checks and to see how they're doing and I know you know Bill used to go to different companies or retailers that he was invested in and he count the cars in the parking less so it's it's the same thing I mean you can do your own research you don't need Wall Street to tell you what to buy or sell this is just you know something probably in your own neighborhood that you you can check out yourself yeah and now it had a big break at back in December of 2018 and you know that this was a a pretty good reason for a lot of people to close out the position or sell most of the position but but you held on at least some of it right yeah I held on to a very small portion and and there's nothing wrong with trading around a core position and I held the small position when it broke on earnings but the earnings were actually very good I mean the earnings were were up to 46% sales up 19% but the stock was coming off that was in the middle of December when the whole market was selling off and I think they just took everything down but the fact that I knew the company well I still held on to it and it it didn't spend that much time down there it's 60 before it started moving back up again in participating in the rally so that's I that's where if you know the company well you can make money off it over the long term and not just over a three-day trade or a few weeks or things like that you can you can get a long-term gain out of it yeah and and this the even though I had that really big break the law super long term uptrend was they was still in a upturn it tested a little bit but it's still especially if you bought it way back at twenty thirty dollars you still had some really low cost basis that you earned the right to hey let me give it a little bit more of a chance yeah and if you just Keogh a 200-day moving average the 200-day moving average stayed in an uptrend has stayed in the upper end since since the beginning of that move yeah it's it's telling you that it's it's still intact yeah and so this stock has emerging out back into new highs coming well recovering from that thirty nine percent correction and so definitely one to keep an eye on so let's go to this second stock and this is PayPal ticker symbol why pl/i and you know this is this is one that a lot of people are familiar with strong brand name their payment processor and venmo is is really kind of the the new thing for them over the last few years right into in venmo i guess has actually become what is it a verb because venmo me or say I've been well people everywhere yeah and well but it's interesting that even though that's it's become very popular they still haven't made money off that segment and they're they're starting to figure out how they can charge extra for extra services on this thing but this has been a very very consistent company and I PayPal has been around first they were connected it was actually a spinoff from eBay right and and you can still buy things through PayPal on eBay and I guess their revenues from eBay are getting smaller and smaller but you're able to use a PayPal in a number of different ways of for sending money and I've used it I've used it many times in the past now the interesting thing about PayPal it had it had a nice long base going into into its earnings report in in in January at the end of January and they had it they had a good report and the the earnings were up 25% sales up 13% and the stock sold off and it sold off for one day but then it immediately started coming back and on that's on that sell off that's where I first actually purchased it because I said there's nothing wrong with this report the stocks in a good segment in a good in a good area and then it's made a very very nice move and I just think that longer-term the consistency of the earnings the way the stock is acting the way its it's still holding up you know in a market that's getting a little more volatile this could be a good good name going forward and let's go a little bit further into just the the earnings reaction because that those next few days can tell you a lot about what Wall Street really thinks about that report yeah well I mean if you if you see where the stock if it if a stock reacts badly on urns let's say it drops and it and it stays down and it closes near the low of the day to me that's telling me that they were selling throughout the day and a lot of people liquidating positions especially if it's on high volume but the fact that this this immediately went it went down but then it started rallying and within its trading range on that day it closed more to the upper end or the the upper half of its trading range telling me that some a lot of that volume was people actually buying the other thing is that it pulled right back down I think almost hit its 50-day moving average and pulled back down on to a base that it previously had come out of so you had a lot of support in that area and then the very next day it was up again and it was up on it was also very good above average daily volume and then it immediately came back right back to close to highs in the next few days and then launched launched a great move yeah and just a really nice trending stock now acting like a leader should right and it's in its and you know now it's a bigger company and it's it looks like a a core institutional holding and then I know institutions have continued to accumulate positions in that every quarter in the last year you've had increased institutional sponsorship I in this company so let's go to the the third stock here and this is Generac and this was an interesting one when he said you wanted to talk about this because this is generators here so why did this come up on your radar well this is something that I've been very interested in recently in on November 9th I live in Malibu California and we experienced a fire that came right through our well right it actually burned a storage barn that that we had in our house and house across the street burned down the one behind us burned down and up the street 60 to 70 homes are gone and the reason why I got interested in this is that I really needed a generator and we were out of power for 18 days and I I came to enjoy the the fact that a friend actually bought a smaller portable generator over and and that helped out but with all the different things that are going on in the u.s. in terms of in terms of an aging grid and aging electrical grid the fact that that even PG and E there was an article in the LA Times talking about four and a half to five million homes could be without power at times of high winds they're actually going to turn the electricity off you know that will spur a huge demand for this company's generators now they have 51% of their their market is residential generators forty-one percent is commercial and industrial market and and and so there could be a huge potential for this stock to make a move now it the earnings have been have been have been fairly good five out of the last six quarters have been gains of I think over over twenty twenty three percent or so they only had one quarter a few quarters ago that was only up two percent the sales have continued on so their earnings are good the stock hasn't taken off yet this is a watch this is a stock I'm watching and this is this is by what you own because I did buy one of their generators I'm all set from the next power outage and so the other thing that's very interesting is if you look at al if you take a step back and you look at a long-term chart on Generac this stock has actually been going sideways for five years it came out and went public in 2010 had a great move it went from ten to actually sixty so it has had the ability I always like to see this I always want to look back and see has the stock that I'm interested it had a move in the past and this one has I mean it had a six-fold move built has gone sideways for five years earnings are still our comings and so it's building a base for the next move hasn't broken out yet and maybe we have to wait another three months maybe it's beginning of six months but this is one of those ones I want to put on the watch list and and get ready if it actually starts following through and goes through its old high yes so four four of you when you're on your mark Smith charts or looking at any charts looking on a monthly chart because it is amazing it's just you can really see that really strong run that David is talking about and then it taking five years off and it's almost building a really big cup with handled and it's starting to emerge from that that really does put it in perspective yeah and you know but this is on a watch list day it's not bought yet but I'm watching it closely and it looks like it's setting up it had a nice a nice move off its last earnings report but now it's been drifting down as the market is has come off the relative strength is actually picking up but this is yeah this is a definite watch and and will give me some time to listen to more conference calls and and get to know the company but when I talk to people about generators now a lot of I just talked to a friend yesterday said you know that that makes a lot of sense because when you're out when you're out of power and you have no lights yeah it could be a little it's it's a little scary yeah and you know what's gonna be the next disaster in Southern California well it might be it might be an earthquake but wherever you live there's always something exactly something that's gonna get you so I you know it's it's it's good to have so those are three great stocks that that we just spoke about that David highlighted here and David thanks so much for being here it's great having you okay thank you always always a pleasure to do this love talking about the market and next week we'll have Chris castle back on the show for discussion about vertical violations now this is a crucial concept to be aware of when it comes to spotting potentially prolonged Corrections and we'll also have a sponsored interview Randy Watts of William O'Neal and company will be talking to Doug Peebles chief investment officer of fixed income at Alliance Bernsen and they're going to be talking about fixed income strategies so don't miss it o-haru shapira's thanks for listening and for this week's milton charts make sure to go to investors comm slash podcast where you'll find details for each episode in the podcast episode section make sure to subscribe rate and review our podcast if you haven't already we'd really appreciate it you can also send us your questions and comments to investing podcast at investors comm we would love to hear from you and may use your comments on an upcoming episode you hey everyone thanks so much for watching investors business daily on youtube if you want to watch more videos make sure you hit that subscribe button so you don't miss a thing

Channel: Investor's Business Daily

Views: 22,971

Rating: 4.9655914 out of 5

Keywords: investor's business daily, david ryan, O'Neil Protege, picking top stocks, how to find top stocks, investing with IBD

Id: pOjt-2jCuUM

Length: 37min 36sec (2256 seconds)

Published: Tue Jan 07 2020