Opinion: Follow this pattern to make money outside FAANG stocks

From the large number of emails I receive, anecdotal evidence is that many money managers and private investors have become drastically overweighted in FAANG stocks.

FAANG stocks are Facebook FB, +1.75% Apple AAPL, +1.86% Amazon AMZN, +1.17% Netflix NFLX, +1.10% and Google GOOG, +1.58% GOOGL, +1.51%

Such over-concentration has been working, but there is nothing constant in the markets. Most investors recognize that they need to trim FAANG stocks and diversify. However, the pushback I have seen is that some investors see a lack of opportunities in blue chips outside FAANG stocks.

That is simply not true. If you watch for this particular pattern, there are plenty of opportunities. Investors following this pattern have recently made big profits. The pattern is breakouts from long bases with heavy volume and certain other characteristics. Let me illustrate with three recent examples of blue chip companies in the Dow Jones Industrial Average DJIA, +0.69%

Wal-Mart

Please click here for an annotated chart of Wal-Mart WMT, -0.98% stock; it followed the pattern described above. The Arora Report gave a buy signal only about a month ago when the stock was around $84 and gave the target zone’s low band of $100. The target has already been hit.

Now The Arora Report has revised the target zone and given a new buy zone.

Please click here for the chart of Wal-Mart that was previously published on Oct. 11. For the sake of full transparency, this chart is unchanged from the prior publication. The chart shows the characteristics that, in part, led to the buy signal. For more details and reasons, please see “This Dow company is ready to go all-in against Amazon.”

Wal-Mart’s stock also provides a big dividend of 2.31%

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Intel

Please click here for an annotated chart of Intel INTC, +0.72% stock; it also followed the pattern described above. Since the breakout shown on the chart, Intel’s stock moved as high as $47.30. For the sake of full transparency, this chart is unchanged from the prior publication. For details and reasons for the buy signal, please see “A breakout in this cheap, forgotten stock is powering the Dow Jones Industrial Average.”

The Arora Report gave a buy signal on Intel at $34.01, anticipating a breakout that actually happened as shown on the chart. A simple technique investors can use to significantly enhance their returns is to start a new trade-around position in a core, long-term position. This is exactly what we did at The Arora Report by giving a signal for a new trade around a position on Intel’s stock on the breakout.

Intel’s dividend is 2.39%.

Cisco

Cisco’s CSCO, +0.41% stock has recently shown a similar pattern. Please click here to see details, such as the buy zone and the target zone. Cisco’s divided is 3.23%.

Artificial intelligence

The other pushback I have seen for concentrating in FAANG stocks, along with Nvidia NVDA, +0.92% and AMD AMD, +0.53% is artificial intelligence.

There are less expensive ways to invest in artificial intelligence. One way is to buy the stock of Applied Materials AMAT, +2.05% on a pullback in the buy zone. The Arora Report bought Applied Materials at $16. Since then it has traded as high as $60.89. Please see “How to invest in artificial intelligence without getting burned.”

In the future, there are likely to be many other such opportunities outside the FAANGs for investors who see merit in diversification.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].