We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Stocks With Momentum Anomaly to Buy This Earnings Season
Read MoreHide Full Article
The growth picture for second-quarter earnings is pretty weak, with S&P 500 earnings expected to decline the most since the 2008 recession. Also, most companies are still unable to provide guidance on account of pandemic-driven uncertainties.
But it isn’t all doom and gloom as we are starting to see some early signs of improvement in earnings estimates for the current period and beyond. The recent flow of economic readings has broadly been positive, suggesting that the longed-for recovery is in place. However, the concern is that the surge in new infections will derail the momentum.
Investors should remember that the secret to making money, regardless of market conditions, is to buy stocks that have been burned but still have the potential to soar. Wall Street ended higher on Jul 22, with the Dow up 0.62%, the S&P up 0.58% and the Nasdaq up 0.24%, after mixed corporate earnings results and stimulus negotiations in Washington.
Against this backdrop, reacting hastily to volatile trends can cause more damage to an investor’s portfolio returns than an actual downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is about buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, some investors are anxious about booking losses and hence hold on to losing stocks for too long, hoping for a rebound in prices.
Meanwhile, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid such mistakes. So, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Thus, momentum investing is based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price and rake in handsome gains.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.
Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.
Current Price greater than $5: The prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.
Here are three of the seven stocks that made it through this screen:
MarketAxess Holdings Inc. (MKTX - Free Report) operates an institutional electronic trading platform delivering liquidity opportunities, execution quality and cost savings across global fixed-income markets. The stock has surged 57.7% in the past year but has lost 0.9% in the past week. It has a Momentum Score of B.
Headquartered in Ann Arbor, MI, Domino's Pizza, Inc. (DPZ - Free Report) is the largest pizza company in the world based on retail sales. The stock has gained 48.4% in the past year and has a Momentum Score of A. Shares of the company have declined 5.9% in the past week.
Neurocrine Biosciences, Inc. (NBIX - Free Report) is a biopharmaceutical company that develops therapeutics for the treatment of neurological, endocrine and psychiatric disorders. The stock has returned 51.3% in the past year and has a Momentum Score of B. Shares of the company have lost 3.5% in the past week.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Bigstock
3 Stocks With Momentum Anomaly to Buy This Earnings Season
The growth picture for second-quarter earnings is pretty weak, with S&P 500 earnings expected to decline the most since the 2008 recession. Also, most companies are still unable to provide guidance on account of pandemic-driven uncertainties.
But it isn’t all doom and gloom as we are starting to see some early signs of improvement in earnings estimates for the current period and beyond. The recent flow of economic readings has broadly been positive, suggesting that the longed-for recovery is in place. However, the concern is that the surge in new infections will derail the momentum.
Investors should remember that the secret to making money, regardless of market conditions, is to buy stocks that have been burned but still have the potential to soar. Wall Street ended higher on Jul 22, with the Dow up 0.62%, the S&P up 0.58% and the Nasdaq up 0.24%, after mixed corporate earnings results and stimulus negotiations in Washington.
Against this backdrop, reacting hastily to volatile trends can cause more damage to an investor’s portfolio returns than an actual downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is about buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, some investors are anxious about booking losses and hence hold on to losing stocks for too long, hoping for a rebound in prices.
Meanwhile, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid such mistakes. So, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Thus, momentum investing is based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price and rake in handsome gains.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.
Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.
Zacks Rank #1: No matter whether it is a good market or bad, stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.
Current Price greater than $5: The prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.
Here are three of the seven stocks that made it through this screen:
MarketAxess Holdings Inc. (MKTX - Free Report) operates an institutional electronic trading platform delivering liquidity opportunities, execution quality and cost savings across global fixed-income markets. The stock has surged 57.7% in the past year but has lost 0.9% in the past week. It has a Momentum Score of B.
Headquartered in Ann Arbor, MI, Domino's Pizza, Inc. (DPZ - Free Report) is the largest pizza company in the world based on retail sales. The stock has gained 48.4% in the past year and has a Momentum Score of A. Shares of the company have declined 5.9% in the past week.
Neurocrine Biosciences, Inc. (NBIX - Free Report) is a biopharmaceutical company that develops therapeutics for the treatment of neurological, endocrine and psychiatric disorders. The stock has returned 51.3% in the past year and has a Momentum Score of B. Shares of the company have lost 3.5% in the past week.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.