The broader U.S. equity markets have had a topsy-turvy week so far, with stocks surging higher on falling oil prices and renewed buying of tech stocks that allayed fears of slowing AI investments following the Democrats’ strong midterm results. However, hotter-than-expected inflation data and the shocking revelation of an extra-marital affair by NVIDIA CEO with a likely Chinese spy rattled markets, triggering a downslide. The consumer price index for October increased a seasonally adjusted 0.4% for the month compared with a broad-based expectation for a 0.3% increase, sparking concerns of a likely interest rate hike by the Federal Reserve.

The markets were quick to bounce back, buoyed by euphoria around AI firm Anthropic's upcoming IPO and a rebound in NVIDIA. The focus has now shifted to the Fed’s policy meeting next month, with investors broadly expecting a quarter-point rate increase. Amid the vagaries of the market, 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, like Reliance, Inc. (RS Quick QuoteRS - Free Report) , Arrow Electronics, Inc. (ARW Quick QuoteARW - Free Report) and PBF Energy Inc. (PBF Quick QuotePBF - Free Report) , 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.

Momentum strategies have been known to be alpha-generative over a long period and across market stages. Therefore, this strategy is quite tricky to implement, as detecting these trends is not easy. 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 long-term price momentum and a short-term pullback in price.

Screening Parameters for Momentum Anomaly Stocks

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:

Los Angeles-based Reliance is a leading metals service center company engaged in value-added materials management and metals processing services. It also distributes over 100,000 metal products to more than 125,000 customers across a vast spectrum of industries. Reliance is the biggest North American metals service center company based on revenues, with more than 300 locations. 

The stock has gained 55.7% over the past year but lost 2.7% over the past week. Reliance has a Momentum Score of A. 

New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. It provides one of the broadest product ranges in the electronic components and enterprise computing solutions distribution industries. Along with these, the company provides a wide range of value-added services to help customers reduce their marketing time, lower the total cost of ownership, introduce innovative products through demand creation opportunities and enhance their overall competitiveness.

The stock has surged 78% over the past year but declined 2.3% over the past week. Arrow Electronics has a Momentum Score of A.

Based in Parsippany, NJ, PBF Energy is a leading independent refiner of crude oil. Through six oil refineries and associated infrastructure in the United States, the company produces unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products. The refineries can collectively process about 1,000,000 barrels of crude oil per day.   

The stock has surged 80.1% in the past year but declined 4% in the past week. PBF Energy has a Momentum Score of A.