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VIX Plunges to a 4-Month Low: 5 Top-Ranked Momentum Picks

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Is volatility in the U.S. stock decreasing? The CBOE VIX — which reflects S&P 500 option bets to calculate expectations for volatility over the coming 30 days — is currently below its five-year historical average. Moreover, the index declined more than 55% in the last three months.

Since stock market performance and volatility index move in opposite directions, this is an extremely positive sign for the U.S. stocks. This situation is likely to uplift investors’ confidence significantly. Considering these positives, momentum stocks with favorable Zacks Rank are lucrative investment options.  

CBOE VIX Drops Below Psychological Barrier  

On May 10, VIX closed at 13.23, touching its lowest since Jan 26 and also below its 200-day moving average for the first time since Jan 12. The 200-day moving average is popularly regarded as a longer-term level of support for the stock market momentum. The volatility index is also below its 50- and 100-day moving averages indicating short-term support level.

The VIX reached a 29-month high of 37.32 in Feb 5, doubling itself in a single session, which resulted in a 10% correction for major stock indexes. Consequently, market volatility persists with big swings in both directions on an almost daily-basis.

It took four months for the Wall Street’s fear index to breach the 200-day moving average floor. Such a long spell was last recorded since early 2016 when China decided to devalue its currency. VIX is below its psychological barrier means that the index is likely drop more in near future. All these reflect significant upside for the equities.

Robust Earnings Momentum

First-quarter earnings results have been exhibiting strong momentum so far. In fact, investors have pinned high hopes on first-quarter 2018 earnings. Total Q1 earnings for the 444 S&P 500 companies that have reported so far are up 24.5% from the same period last year on 9.3% higher revenues.

Considering first-quarter as a whole, total earnings are expected to be up 23.6% from the same period last year on 8.8% higher revenues, the highest quarterly earnings growth pace in seven years. For full-year 2018, total earnings for the S&P 500 index are expected to be up 19.2% on 5.7% higher revenues. (Read more: A Critical Look at the Q1 Earnings Season)

Our Top Picks

The U.S. stock markets have remained highly volatile in the past three months. However, the markets are displaying positive trends supported by robust first quarter earnings and strong economic data. Better-than-expected first-quarter earnings will sustain the stock market momentum.

At this stage, investment in stocks with strong earnings momentum will be lucrative. Our selection is backed by a good Zacks Momentum Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that stocks with a Momentum Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Momentum-investing space. We have handpicked five such stocks with Zacks Rank #1 and Momentum Style Score of A.

Chart below depicts price performance of our five picks in the last month.


Twin Disc Inc. (TWIN - Free Report) designs, manufactures and sells heavy duty off-highway power transmission equipment. Its principal markets are: construction equipment, industrial equipment, government, marine, energy and natural resources and agriculture.

Twin Disc has expected earnings growth of 319.5% for current year. The Zacks Consensus Estimate for the current year has improved by 104.5% over the last 30 days.

Commercial Vehicle Group Inc. supplies interior systems, vision safety solutions and other cab-related products for the global commercial vehicle market, including the heavy-duty truck market, construction market and other specialized transportation markets.

Commercial Vehicle Group has expected earnings growth of 200% for current year. The Zacks Consensus Estimate for the current year has improved by 11.9% over the last 30 days.

LPL Financial Holdings Inc. (LPLA - Free Report) is engaged in providing an integrated platform of brokerage and investment advisory services to financial advisors, both independent and working at financial institutions, in the United States.

LPL Financial Holdings has expected earnings growth of 57.3% for current year. The Zacks Consensus Estimate for the current year has improved by 22.3% over the last 30 days.

Boise Cascade L.L.C. (BCC - Free Report) operates as a wood products manufacturer and building materials distributor. The company manufactures engineered wood products, plywood, lumber and particleboard and also distributes wood products.

Boise Cascade has expected earnings growth of 74.9% for current year. The Zacks Consensus Estimate for the current year has improved by 25.1% over the last 30 days.

Weight Watchers International Inc. (WTW - Free Report) is the largest provider of weight control programs in the world. The core of their business is weekly meetings, in which they present their scientifically designed program, incorporating group support and education about healthy eating patterns, behavior modification and physical activity.

Weight Watchers has expected earnings growth of 73.3% for current year. The Zacks Consensus Estimate for the current year has improved by 10.9% over the last 30 days.

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