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3 Momentum Anomaly Stocks to Buy as Rate Cut Odds Increase

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Over the past few trading days, the broader U.S. equity markets have been trading at record highs buoyed by optimism related to rate cuts driven by easing inflationary pressures and an uptick in the unemployment rate. Although the June labor market data revealed that the U.S. economy added higher-than-expected 206,000 nonfarm payrolls, unemployment rose to 4.1% compared with broad-based expectations of a flat curve at 4%.

These ignited hopes of a possible rate cut as early as September. The optimism was further propelled by Federal Reserve Chair Jerome Powell’s latest views, in which he observed that keeping interest rates elevated for too long could risk economic growth. The subtle hint of a less-restrictive stance probably aided the uptrend. However, investors would look for more clarity in the key inflation data arriving later this week, with the June consumer price index due on Thursday and the producer price index on Friday.

Amid the uncertainty, 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. 

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 Brinker International, Inc. (EAT - Free Report) , Aspen Aerogels, Inc. (ASPN - Free Report) and Coinbase Global, Inc. (COIN - 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 stocks out of the five that made it through this screen:

Based in Dallas, TX, Brinker owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. The company remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives such as streamlining of menu and its innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. The stock has surged 74.9% in the past year but declined 6.8% in the past week. Brinker has a Momentum Score of A. 

Headquartered in Northborough, MA, Aspen is a technology leader in sustainability and electrification solutions. The company designs, develops, manufactures and sells aerogel insulation products primarily for use in the energy infrastructure and sustainable insulation materials markets in the United States, Asia, Canada, Europe and Latin America. The stock has gained 172.6% in the past year but declined 2.9% in the past week. Aspen has a Momentum Score of B.  

Based in Wilmington, DE, Coinbase offers financial infrastructure and technology for the crypto economy in the United States and internationally. In addition to crypto assets, it provides technology and services that enable developers to build crypto products and securely accept crypto assets as payment. The stock has rallied 146.7% in the past year but lost 3.3% in the past week. Coinbase has a Momentum Score of A.

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:

See More Zacks Research for These Tickers

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Brinker International, Inc. (EAT) - free report >>

Aspen Aerogels, Inc. (ASPN) - free report >>

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