Everyone was pummeled by inflation and now we have talks of a recession, which usually don’t bode well for markets.
So, how is Big Money reacting? It’s selling more than buying. Let me explain.
Markets and Big Money in the Last Six Months
My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. We follow Big Money because our research shows Big Money moves markets.
We created the Big Money Index (BMI), which is a 25-day moving average of large-scale investor buy and sell activity. Over time it has shown itself to be a leading indicator of where markets may go. The BMI went oversold in May, which is a hugely bullish long-term signal. It’s bounced back a bit since but is trending lower again of late:
The Big Money selling includes shedding the sector that’s been a lone 2022 bright spot – energy. That’s ushered in more volatility as uncertainty continues to reign over inflation, recession, and geopolitical tensions. Check out the recent dip:
On a more macro level, Big Money has been selling ETFs heavily over the past six months. Worse, buying has been basically nonexistent since March, meaning there’s no leadership now. Big selling combined with no buying will drive markets downward every time.
But in times of uncertainty, bargains can be had. This month’s ETF picks have long-term value appreciation in mind. Some of them are experiencing low liquidity right now due to market volatility and a lack of overall leadership. Still, we think these ETFs have great long-term potential: FFTY, IEIH, XLV, FXU, and XLP.
Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.
Now, let’s get to the best ETFs to buy now for July 2022.
Innovator IBD 50 ETF (FFTY) Analysis
This ETF is a weekly, rules-based, computer-generated stock index with a nearly 1.4% current dividend that seeks to identify the current top 50 growth stocks. It’s seen a downtrend for a while, with no Big Money buying. But, as markets rise again (and they almost certainly will at some point), FFTY should benefit because it holds great stocks focused on growth. It’s down 41.4% so far this year and is trading at an attractive price relative to its peak:
FFTY holds many growth-oriented stocks across different industries. One health care example is Vertex Pharmaceuticals Incorporated (VRTX), which has three-year sales growth of 36.1%, three-year EPS growth of 23.5%, and a 30.8% profit margin. Here is the one-year Big Money action for VRTX:
iShares Evolved U.S. Innovative Healthcare ETF (IEIH) Analysis
This is another low-liquidity ETF, so expect some volatility. That said, IEIH holds tremendous stocks in U.S. pharmaceutical and biotechnology firms with lots of long-term potential and pays a nearly 1.3% current dividend. It’s been choppy for much of the last year, but overall is down just 4.6% so far in 2022:
One great stock IEIH holds is AbbVie, Inc. (ABBV). This drugmaker has seen big three-year EPS growth of 44.3% and sports a profit margin of 20.4%. Sales have been strong too, growing 20.6% over three years. The Big Money has been all over ABBV:
Health Care Select Sector SPDR ETF (XLV) Analysis
Again sticking with the health care sector, XLV holds many great companies across several health care fields, including medicines, insurance, equipment suppliers, and more. This ETF is giant, so there should be no liquidity issues, and pays a more than 1.4% current dividend. XLV has seen Big Money action throughout the past year and is up 0.6% in that time:
A fantastic stock within XLV is Thermo Fisher Scientific Inc. (TMO), a supplier of scientific equipment and services worldwide. It’s down in 2022, but its fundamentals remain strong. TMO has growing sales (one-year sales growth of 21.7%) and three-year EPS growth of 40.8%. Since 2012, TMO has attracted lots of Big Money. Each blue bar below shows when it was a Top 20 Big Money buy:
First Trust Utilities AlphaDEX Fund (FXU) Analysis
When investors seek safety, that often means utilities that pay dividends. That makes sense because we all have to pay our utility bills, recession or not. FXU is a medium-liquidity ETF, so it still experiences some choppiness. But it’s up 5.4% over the past year, pays a more than 2.2% current dividend, and looks to have a bright future:
One rock-solid dividend stock within this ETF is Duke Energy Corporation (DUK), a U.S. energy firm serving southern and midwestern areas of the country. While Big Money has been in and out of it over the past year, DUK has three-year EPS growth of 51.9% and a profit margin of 15.5%. Plus, it jumped 7.2% over a year’s time:
Consumer Staples Select Sector SPDR ETF (XLP) Analysis
With recession fears high, consumer staples stocks are attractive to investors. That’s certainly justified right now. XLP holds several household names consumers buy regularly, is highly liquid, and offers a nearly 2.4% current dividend yield. It’s seen 12 Big Money buy signals in the last year and is up 4.2% in that time:
A great stock in XLP is Coca-Cola Company (KO), the beverage maker (and Warren Buffett favorite). KO is fundamentally strong – it has one-year sales growth of 17.2% and a profit margin of 25.2%. It’s up more than 7% so far in 2022 and it wouldn’t surprise me to see this one rise more (it’s had 48 Top 20 Big Money buy signals since 1992 and is up 1,148.7% in that time):
Here’s a Big Money recap:
- When Big Money buying heats up, stocks and ETFs tend to rise
- Deep selling on great quality can be a phenomenal opportunity
- Repeated buying usually means outsized gains
Bottom Line and Explanatory Video
FFTY, IEIH, XLV, FXU, and XLP are my top ETFs for July 2022. They hover around health care a lot, but also cover other sectors that could rise over time. These picks can climb higher, in my opinion, largely because they each hold great stocks. With markets rocky, bargains can be had, and these ETFs show great long-term potential right now.
To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com
Disclosure: the author holds no positions in FFTY, IEIH, XLV, FXU, XLP, VRTX, TMO, DUK, or KO at the time of publication, but holds long positions in ABBV in managed accounts.