Investors looking to find market leaders with high growth potential often use systematic strategies that mix technical and fundamental analysis. One method is the system made popular by Mark Minervini, a two-time U.S. Investing Champion. His strategy depends on the Specific Entry Point Analysis (SEPA) system, which concentrates on stocks showing solid uptrends, improving fundamentals, and a definite catalyst, all while focusing on strict risk management. A central part is the Trend Template, a technical checklist made to filter for stocks already in strong Stage 2 advances. When joined with filters for high-growth fundamentals, this process tries to find companies not only moving higher, but doing so because of excellent business performance.
A Solid Technical Base: Meeting the Trend Template
For a stock to be evaluated under the Minervini framework, it must first meet the strict technical conditions of the Trend Template. This confirms the stock is in a definite uptrend with institutional backing, avoiding the problems of trying to buy a stock in decline. TE CONNECTIVITY PLC (NYSE:TEL) currently shows an agreement with many of these important technical points:
- Trading Above Key Averages: The stock's price is above its rising 150-day and 200-day simple moving averages (SMAs). This is a main sign of a good long-term uptrend.
- Moving Average Order: The shorter 50-day SMA is above the longer 150-day and 200-day SMAs, a positive setup that shows continued buying momentum across different periods.
- Nearness to Highs: A key feature of Minervini's strategy is concentrating on strength, not low price. TEL's current price is well above its 52-week low and within an acceptable distance of its 52-week high, indicating it is a market leader, not a follower.
- Better Relative Strength: With a ChartMill Relative Strength (CRS) rating of 82.47, TEL is performing better than over 82% of the market. High relative strength is important, as it finds stocks that are wanted and leading the market higher, a central idea of momentum investing.
This technical position indicates TEL is in a Stage 2 advance, the period where Minervini thinks the largest gains are made. The strategy intentionally avoids stocks in basing or falling stages, looking instead for those where the trend is already clearly favoring buyers.
The Fundamental Driver: Meeting High Growth Standards
A good chart is only one part. The Minervini strategy looks for stocks where technical strength is supported by improving business fundamentals. This is where the "High Growth Momentum" part is important, filtering for companies showing solid and getting better financial numbers. TEL's recent results highlight several positive growth traits:
- Earnings Momentum: The company has shown strong earnings growth, with EPS rising 39.5% in the latest quarter compared to the same time last year. More significantly, this growth rate has been increasing over recent quarters.
- Steady Earnings Surprises: TEL has exceeded analyst EPS estimates in each of the past four quarters, with an average surprise above 6%. This steady overperformance can work as a catalyst, drawing institutional interest and leading to higher valuations.
- Good Revenue Growth: Top-line growth is also solid, with sales up 21.7% year-over-year in the last quarter. This shows demand for TE Connectivity's connectivity and sensor products is high, supporting the profit growth.
- Positive Analyst Changes: Analysts have been increasing their estimates for the company's future earnings, with the average next-year EPS estimate moved up by 5.7% over the past three months. Upward changes are a key sign of rising confidence in a company's future.
These fundamental points give the "reason" for the stock's technical strength. In Minervini's SEPA system, such increasing growth in sales and earnings, along with positive surprises and estimate changes, often works as the catalyst that pushes a stock's next large move higher.
Technical Condition Review
A look at the detailed technical report for TEL gives a wider view. The report gives the stock a good Technical Rating of 7 out of 10, noting its positive long-term trend and strong yearly performance compared to the wider market. It finds several important support areas below the current price, which can help set risk levels. However, the report also notes the Setup Quality rating is currently moderate, meaning the stock might be in a pause phase within its uptrend instead of at an immediate breakout point. For investors using the Minervini method, this indicates TEL deserves a place on a watchlist for possible entry if it forms a new volatility contraction pattern and breaks out with strength.
Locating Comparable Prospects
TEL shows the kind of stock that appears when mixing trend-following technical filters with searches for high-growth fundamentals. For investors wanting to use this systematic method to find other possible candidates, the predefined screen that found TEL is available for more study.
Disclaimer: This article is for informational and educational purposes only. It is not intended as investment advice, nor does it constitute a recommendation to buy, sell, or hold any security. The analysis is based on current data and a specific investment methodology, and past performance is not indicative of future results. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment decisions.
