The equity market witnessed intense volatility over the past couple of days. On one hand, recession fears spooked the market, while on the other, the easing inflation trend buoyed it. In its March policy meeting, the Fed officials observed that the banking crisis could drag the economy into a mild recession later this year. This frayed investor nerves, and the market contracted once the minutes of the March meeting were released. However, stocks regained their lost footing and witnessed a northward trajectory as better-than-expected inflation reading rekindled hopes of a likely pause in the Fed rate hike cycle.
Data from the March producer price index, a leading indicator of consumer inflation, revealed a 0.5% decline month over month compared with broad-based expectations of a relatively flat curve. The core wholesale prices reading (which excludes food and energy) fell 0.1% sequentially, compared with expectations of a 0.2% increase. With softening inflationary pressures, investors widely expect the Fed to hold the interest rates in the near term. Moreover, the Fed indicated earlier that there might be just another hike in the current year depending on the macroeconomic factors, as tightening credit conditions could put pressure on the economy. With uncertainty becoming the norm of the day, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks when value or growth investing fails to generate the desired profits. This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. But before we delve deep into it, let us try to fathom why does the momentum strategy at all work? There are several behavioral biases that most investors exhibit in their decision-making. And these emotional responses, or rather mistakes, are the very reason that makes the momentum strategy work. For example, some investors are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices. On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such errors in judgment. Furthermore, investors initially tend to underreact to news, events or data releases. However, once things become clear, they have a habit of going with the flow and overreacting, causing dramatic price reactions. These behavioral problems extend trends, thus opening up huge opportunities for momentum players. To sum up, momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again. In this context, stocks like National Beverage Corp. ( FIZZ Quick Quote FIZZ - Free Report) , Trip.com Group Limited ( TCOM Quick Quote TCOM - Free Report) and Hello Group Inc. ( MOMO Quick Quote MOMO - Free Report) are worth betting on. Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play. Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price. 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: Stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance irrespective of the market conditions. You can see . the complete list of today’s Zacks #1 Rank stocks here Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. 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 stocks must all be trading at a minimum of $5. 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 six stocks that made it through this screen: Based in Fort Lauderdale, FL, National Beverage Corp. produces, markets and sells a portfolio of sparkling waters, juices, energy drinks and carbonated soft drinks primarily in the United States and Canada. The beverages are mostly targeted at active and health-conscious consumers. National Beverage has gained 6.3% in the past year but declined 2.5% in the past week. It has a Momentum Score of A. Headquartered in Shanghai, China, Trip.com is a premier travel service provider, helping travelers around the world make informed and cost-effective bookings for travel products and services. It offers accommodation reservation, transportation ticketing, packaged tours and in-destination, corporate travel management and other travel-related services in China and internationally. TCOM has appreciated 54.4% in the past year but declined 5.1% in the past week. Trip.com has a Momentum Score of A. Headquartered in Beijing, China, Hello Group provides mobile-based social and entertainment services. It enables users to discover new relationships, expand their social connections and build meaningful interactions. The stock has rallied 70.5% in the past year but declined 5.6% in the past week. Hello Group has a Momentum Score of B. 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