Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the
Zacks Style Scores, helps address this issue for us.
Below, we take a look at
Ally Financial (, which currently has a Momentum Style Score of B. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions. ALLY Quick Quote ALLY - Free Report)
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Ally Financial currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.
You can see the current list of
Zacks #1 Rank Stocks here >>> Set to Beat the Market?
Let's discuss some of the components of the Momentum Style Score for ALLY that show why this auto finance company and bank shows promise as a solid momentum pick.
Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For ALLY, shares are up 4.8% over the past week while the Zacks Financial - Consumer Loans industry is up 2.34% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 15.17% compares favorably with the industry's 5.21% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of Ally Financial have risen 42%, and are up 30.43% in the last year. On the other hand, the S&P 500 has only moved 8.93% and 17.5%, respectively.
Investors should also pay attention to ALLY's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. ALLY is currently averaging 3,631,824 shares for the last 20 days.
The Zacks Momentum Style Score also takes into account trends in estimate revisions, in addition to price changes. Please note that estimate revision trends remain at the core of Zacks Rank as well. A nice path here can help show promise, and we have recently been seeing that with ALLY.
Over the past two months, 3 earnings estimates moved higher compared to 1 lower for the full year. These revisions helped boost ALLY's consensus estimate, increasing from $2.43 to $2.48 in the past 60 days. Looking at the next fiscal year, 4 estimates have moved upwards while there have been no downward revisions in the same time period.
Given these factors, it shouldn't be surprising that ALLY is a #1 (Strong Buy) stock and boasts a Momentum Score of B. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Ally Financial on your short list.