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Top 5 Momentum Stocks for December After a Solid November

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U.S. stock markets have been witnessing a strong recovery since mid-October after a sharp decline since the beginning of this year. In November, the Dow, the S&P 500 and the Nasdaq Composite rallied 5.3%, 4.6% and 3.3%, respectively. The slowing inflation rate bolstered investors’ confidence in risky assets like equities.

Although all major stock indexes are currently in negative territory year to date, we believe that the ongoing northbound movement of stocks will convert into a year-end rally supported by Fed Chairman’s recent dovish comments.

At this stage, it will be prudent to invest in stocks that have momentum for the near term with a favorable Zacks Rank. Five such stocks are HF Sinclair Corp. (DINO - Free Report) , DCP Midstream LP (DCP - Free Report) , Arista Networks Inc. (ANET - Free Report) , Fortinet Inc. (FTNT - Free Report) and Texas Pacific Land Corp. (TPL - Free Report) .

Momentum Likely to Continue

Federal Reserve Chairman Jerome Powell indicated that the magnitude of the interest rate hike is likely to be reduced from the December FOMC meeting. On Nov 30, delivered a lecture at the Hutchins Center of the Brookings Institution on monetary and fiscal policies. However, he also mentioned that the central bank has to go a long way to contain inflation to its targeted level.

Powell said, “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”

At the same time, Powell also remarked that the monetary policy will remain restrictive until the inflation rate declines considerably. “Despite some promising developments, we have a long way to go in restoring price stability,”  the Fed Chairman said.  

Moreover,  U.S. GDP grew 2.9% in the third quarter, beating the consensus estimate of 2.8%. This is important because the economy contracted in the first two quarters of this year, compelling a large section of economists and financial experts to warn of a recession. Additionally, despite several major headwinds, the overall management guidance in the third-quarter 2022 earnings season was fairly good.

Momentum investing calls for the 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 anticipation that a stock will only ascend in the short to intermediate term. Therefore, momentum stocks with a favorable Zacks Rank are likely to become an ideal combination of investments.

Out Top Picks

We have narrowed our search to five momentum stocks that have solid upside left for December. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A or B.  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 the past three months.

Zacks Investment Research
Image Source: Zacks Investment Research

HF Sinclair operates as an independent energy company. DINO produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.

HF Sinclair also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming. DINO markets its refined products principally in the Southwest United States and the Rocky Mountains, Pacific Northwest, and other neighboring Plains states.

HF Sinclair has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.8% over the last 30 days.

DCP Midstream owns, operates, acquires, and develops a portfolio of midstream energy assets in the United States. DCP operates through Logistics and Marketing, and Gathering and Processing.

The Logistics and Marketing segment is engaged in transporting, trading, marketing, and storing natural gas and natural gas liquids (NGLs), and fractionating NGLs. The Gathering and Processing segment is involved in gathering, compressing, treating, and processing natural gas; producing and fractionating NGLs, and recovering condensate.

DCP Midstream has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 14% over the last 30 days.

Fortinet is benefiting from rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely. FTNT is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network offerings.

Moreover, continued deal wins, especially those of high value, are solid drivers. Higher IT spending on cybersecurity is expected to aid Fortinet grow faster than the security market. Also, focus on enhancing its unified threat management portfolio through product development and acquisitions is a tailwind for FTNT.

Fortinet has an expected earnings growth rate of 42.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 8.6% over the last 30 days.

Arista Networks develops markets and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. ANET benefits from the expanding cloud networking market, driven by strong demand for scalable infrastructure. The company recently joined the Microsoft Intelligent Security Association.

Arista Networks continues to gain from solid momentum and diversification across its top verticals and product lines. It is well-poised for growth in the data-driven cloud networking business, with proactive platforms and predictive operations. ANET introduced an enterprise-grade Software-as-a-Service offering for its flagship CloudVision platform.

Arista Networks has an expected earnings growth rate of 52.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 8.2% over the last 30 days.

Texas Pacific Land is engaged in land and resource management, and water services and operations businesses. TPL’s Land and Resource Management segment manages approximately 880,000 acres of land in the State of Texas.

Texas Pacific Land also generates revenue from pipeline, power line and utility easements, commercial leases, material sales and seismic and temporary permits related to land uses including midstream infrastructure projects and hydrocarbon processing facilities.

TPL has an expected earnings growth rate of 72.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 7.9% over the last 30 days.

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