Back to top

Image: Bigstock

5 Momentum Picks for October That Survived September Turmoil

Read MoreHide Full Article

Wall Street's more than five-month-long bull run suffered a setback in September. Month to date, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are down 3%, 4.2% and 5.6%, respectively.

Wall Street is expected to continue fluctuating in the near future primarily due to a spike in new coronavirus cases in several countries in Europe and some states in the United States, lack of vaccine or a line of treatment for COVID-19, uncertainty regarding a fresh round of fiscal stimulus from the U.S. government, intensifying geo-political conflict between the United States and China, and the U.S. presidential election scheduled on Nov 3.

Nevertheless, a handful of momentum stocks with a favorable Zacks Rank are flying high after withstanding the September meltdown. These stocks have solid growth potential too. Investment in these stocks is likely to be fruitful in October.

Momentum Investing to the Rescue Amid the Meltdown

Momentum investing calls for a continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that a stock will only ascend in the short-to-intermediate term.

In the current scenario, the market's worst appears to be behind us as negative estimates are already factored in valuations. Several economists have pointed out that the pace at which the U.S. economy recovered during the May to July period dwindled in August. Slow growth in job data, retail sales data and durable goods orders are all examples.

However, the vital point here is that the economy  is still growing, albeit at a slow pace, despite the lack of the second tranche of fiscal stimulus amid continued coronavirus-led woes.

On Sep 16, in his lecture after the conclusion of the two-day FOMC meeting, Fed Chairman Jerome Powell reiterated that the benchmark interest rate will stay zero or near zero at least up to 2023. The Fed will also pursue its existing $120 billion monthly purchase of assets in the form of U.S. Treasury and mortgage bonds until the economy returns to normalcy or the pre-pandemic level.

The Fed's ultra-dovish monetary stance is a long-term positive for the stock market. A low-interest rate will reduce the cost of capital for businesses and consumers will have a lesser propensity to save due to a low deposit rate.

Therefore, higher spending by businesses and consumers is likely to boost the overall economy and raise stock prices. Moreover, a low discount rate will increase the net present value of the investment in equities.

In its latest projection on Sep 25, the Atlanta Fed estimated 32% growth for third-quarter U.S. GDP. On Sep 11, Goldman Sachs predicted 35% growth of the U.S. GDP for the third quarter. Furthermore, projections for U.S. corporate earnings for third-quarter and full-year 2020 are rising since early July, indicating growing corporate profits.

Our Picks

We have narrowed down our search to five momentum stocks that have popped in September. All these stocks witnessed robust earnings estimate revisions in the past seven to 30 days and have strong growth potential. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A.  You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in September.

 

Owens & Minor Inc. (OMI - Free Report) is a global healthcare solutions company providing vital supply chain services to healthcare providers and manufacturers of healthcare products. It operates through two segments — Global Solutions and Global Products.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 22.7% over the past seven days. The stock price has soared 22.8% in September.

FedEx Corp. (FDX - Free Report) is the leader in global express delivery services. It provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

The company has expected earnings growth rate of 57.4% for the current year (ending May 2021). The Zacks Consensus Estimate for the current year has improved 3% over the past seven days. The stock price has jumped 13.8% in September.

Hibbett Sports Inc. (HIBB - Free Report) is engaged in the retail of athletic-inspired fashion products through its stores. Its stores offer a range of merchandise, including athletic footwear, athletic and fashion apparel, sports equipment, and related accessories. It operates in two segments, Lawson and Bolt.

The company has expected earnings growth rate of 86.3% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved more than 48.1% over the past 30 days. The stock price has climbed 12.9% in September.

NIKE Inc. (NKE - Free Report) is engaged in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, and services for men, women and children worldwide.

The company has an expected earnings growth rate of 73.8% for the current year (ending May 2021). The Zacks Consensus Estimate for the current year has improved by 17.3% over the past seven days. The stock price has appreciated 11.1% in September.

Installed Building Products Inc. (IBP - Free Report) is engaged in the installation of insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors and other products in continental United States.

The company has an expected earnings growth rate of 26.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the past seven days. The stock has advanced 10.1% in September.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>