How We Find the 0.25% of Stocks That Make the Market
By -Edward Lance Lorilla
January 07, 20258 minute read
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This works all the time…
January 7, 2025
Note from Michael Salvatore, Editor, TradeSmith Daily:
Today is the last day to join our limited-time free trial of our new Seasonality tool and data for 2025.
Go here, sign up, and put whatever stocks you want into our tool to build a strong trading plan for the year ahead.
Then tomorrow at 10 a.m. Eastern, tune into our research presentation where our CEO, Keith Kaplan, will divulge the full details of a new seasonal trading strategy that beats the pants off the benchmarks.
How We Find the 0.25% of Stocks That Make the Market
By Lucas Downey, Contributing Editor, TradeSmith Daily
Superstar stocks are the holy grail of investing.
You know the ones I’m talking about – the stocks that tower over all others year after year.
You see it in the marketing that entices you with finding the “next Nvidia” or the “next Microsoft.”
The great news is, if you find them, they can transform your portfolio in a huge way. You should be aiming to do this not just in 2025, but every single year.
The bad news is… They’re getting harder to find. The list of superstar stocks is shrinking.
To prove this phenomenon, consider the following study from Professor Hendrik Bessembinder. He found that in nearly 100 years of data, the number of big winning stocks was a mere sliver of the market.
From 1926 to 2016, just 90 stocks accounted for half of the market’s wealth creation.
That’s an incredible stat considering the thousands of stocks traded in those 90 years!
And it’s still shrinking. When you expand the results out just five more years through 2022, the outlier count drops to 72:
Seventy-two stocks out of more than 28,000 U.S.-listed firms studied in Bessembinder’s paper accounted for half the market’s gains.
That’s 0.25%.
This realization may have you thinking it’s best to just park your money in a passive ETF tracking the market and call it a day.
After all, the S&P 500 averages a 10% annual gain going back decades. Pretty good, right?
Good… sure.
But you can do better… a lot better.
Those major indexes contain individual stocks that represent actual businesses.
Some are winners. Some are losers.
0.25% are superstars.
Here’s the million-dollar question: Is there a process to uncover superstar stocks?
The answer is YES!
This is where a quantitative approach can help you sift through a noisy market and uncover the short list of companies exuding superstar qualities.
In my eight years on Wall Street, I learned to keep things simple.
All you need to do is just focus on two basic traits: healthy fundamentals and support from the Big Money.
First, let’s cover healthy fundamentals. When it comes to businesses, growth is what matters.
Let’s use Microsoft Corp. (MSFT) as an example. This is a name I’ve personally owned for years. The software giant is a well-known entity because of its office products, cloud business, gaming, and most recently its pole position in the AI space.
The company has a long history of attractive fundamentals that include growing sales and earnings. In 2017, the company saw sales climb to $89.9 billion with net income of $21.2 billion. Fast-forward to 2024, and sales ballooned to $245.1 billion with net income of $88.1 billion.
Those are mind-numbing growth rates. It’s not surprising that the stock price has exploded in just a handful of years:
Any company with a five-year sales compound annual growth rate (CAGR) of 14.3% and a five-year net income CAGR of 17.6% is going to attract some of the brightest minds on Wall Street.
Here’s where institutional support comes into play, which is the second trait of superstar stocks.
Write down the following seven words: The Big Money chases the best stocks.
I’ve seen it with my own eyes. Large institutional traders spend countless resources researching the fastest-growing companies.
As long as the business keeps firing on all cylinders, institutional appetite stays strong. That’s been the case with MSFT shares.
Below plots an eight-year timeframe, and you’ll notice blue bars accompanying the stock higher. Those signals encompass the two traits of great stocks: strong fundamentals and Big Money buying…
Every blue line above signals a time when MSFT showed sterling fundamentals and unusually large buying activity on a single day. When we see these signals, we know we have a superstar on our hands.
The strongest force in the market is supply and demand. When demand is high, like in Microsoft’s case, shares have nowhere to go but up.
That’s the stairway to heaven! Few stocks have this repeatable pattern.
Since 2017, MSFT shares have gained 443%, with institutional footprints guiding the way. Compare that to the S&P 500’s gain of 150%.
Certainly, 150% isn’t bad. But hunting for superstar stocks is totally worth it.
This brings me back to Bessembinder’s study.
Of those handful of market-beating names, Microsoft was #2 on the all-time list of shareholder wealth creation. Other household names made the list too.
Nvidia Corp. (NVDA) was #26. Want to guess who’s been along for the ride?
The Big Money!
Check it out:
Since 2015, NVDA shares have surged. It’s been one of the most-bought stocks in that short timeframe.
So if you want to find the best stocks, keep it simple and follow the Big Money.
And put a huge emphasis on the highest-quality companies. One simple way to do that is with my favorite scoring metric, the Quantum Score.
It lets me know when a company is flashing the green light.
Here’s Nvidia’s supercharged score of 79.3, indicating the strength in technicals and fundamentals. Above 70 is the go signal:
Final Thoughts
Look, there’s no guaranteed way of uncovering the ever-shrinking list of superstar stocks.
But repeated institutional buy pressure has spotted them in the past.
Chances are the next leadership names will be uncovered early in 2025 just the same way.
This is what makes investing a worthwhile endeavor. Just a couple of these outliers can transform a portfolio – and help you achieve your wealth-building goals.
Quantum Edge Pro analyst Jason Bodner understands the power of strong fundamentals and institutional buying.
Two times a month, he releases one stock primed for upside with these two rare traits. He’s found superstar stocks before.
My bet is he’ll uncover the next Big Money favorites.
I think it’s easier to outperform than most realize…
Simply buy superstar stocks to crush markets!
Regards,
Lucas Downey Contributing Editor, TradeSmith Daily
Note from Michael Salvatore, Editor, TradeSmith Daily:
We couldn’t let you go without mentioning one last thing about Nvidia…
One of the very best days to buy NVDA stock is coming up in just three weeks.
From Jan. 26 to Feb. 20, NVDA has gone up 93% of the time in the past 15 years. And the average return was more than 9%:
And Microsoft is in a strong seasonal period already… Although it has an even better one coming up in March:
As you can imagine, we intend to do a lot more with that capability here in 2025. You can learn more and get involved at our webinar tomorrow, Jan. 8, at 10 a.m. Eastern. Click here to register and check out that free seasonality tool in the meantime.
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