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VIX Plunges to 7-Month Low: 5 Top-Ranked Momentum Picks

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Volatility in the U.S. stock markets is fading out gradually. The CBOE VIX - which reflects S&P 500 option bets to calculate expectations for volatility over the coming 30 days – is currently at its lowest level in nearly seven months. Moreover, the index declined almost 71% in the last six 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 buoy investors’ confidence significantly. Considering these positives, momentum stocks with favorable Zacks Rank are lucrative investment options at the moment.  

CBOE VIX Drops Below Psychological Barrier  

On Aug 7, VIX ended the day at 10.93, its lowest closing since Jan 12. The volatility gauge is currently below its 200-day moving average. The 200-day moving average is popularly regarded as a longer-term level of support for the stock market momentum. VIX 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 on Feb 5, doubling 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. VIX lying below its psychological barrier means that stock market fluctuations are likely to become less frequent in the near future. All these reflect significant upside for the equities.

Major Stock Indexes Northbound

Wall Street’s bullish wave, which commenced in July, continues in August despite the presence of trade war concerns and geopolitical conflicts. The S&P 500 and Dow 30 have posted five straight weekly gains. On Aug 7, Nasdaq Composite remained in the green for six consecutive days, its longest winning streak since March.   

At present, the benchmark S&P 500 is just 0.5% away from reaching an all-time high of 2,872.87, set on Jan. 26. Tech-laden Nasdaq Composite has to gain 1% more to achieve a fresh all-time high. The blue-chip Dow 30 is nearly 3.5% below its all-time high level.

Robust Earnings Momentum

U.S. corporates have so far posted robust results for second-quarter 2018, maintaining the terrific earnings momentum which has begun since the first-quarter 2018. As of Aug 2, already 410 S&P 500 members have reported their quarterly results. Total earnings for these companies are up 24.9% from the same period last year on 10.1% higher revenues.

Notably, in the second-quarter, total earnings of S&P 500 companies are expected to be up 23.9% from the same period last year on 9.3% higher revenues. (Read More: Should We Worry About the Downtrend in Earnings Estimates?)

Our Top Picks

The U.S. stock markets have remained highly volatile in the first half of 2018. However, the markets are displaying positive trends supported by robust earnings and strong economic data. Better-than-expected earnings results will sustain the stock market momentum.

At this stage, investment in stocks with strong price momentum will be lucrative. Our selection is backed by a Zacks Momentum Score  of A 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.

Medpace Holdings Inc. (MEDP - Free Report) is a scientifically-driven, global, full-service clinical contract research organization. The company has expected earnings growth of 60.5% for current year. The Zacks Consensus Estimate for the current year has improved by 29.1% over the last 30 days.

NRG Yield Inc. acquires, owns and operates contracted renewable and conventional generation as well as thermal infrastructure assets primarily in the United States. The company has expected earnings growth of 39.5% for current year. The Zacks Consensus Estimate for the current year has improved by 34.5% over the last 30 days.

Fox Factory Holding Corp. (FOXF - Free Report) is a designer, manufacturer and marketer of suspension products used primarily on mountain bikes. The company has expected earnings growth of 31.5% for current year. The Zacks Consensus Estimate for the current year has improved by 14.2% over the last 30 days.

Callaway Golf Co. (ELY - Free Report) is renowned for developing innovative products that help golfers hit longer and straighter shots from tee to green. The company has expected earnings growth of 62.3% for current year. The Zacks Consensus Estimate for the current year has improved by 6.2% over the last 30 days.

TC PipeLines LP (TCP - Free Report) acquires, owns, and participates in the management of energy infrastructure businesses in North America. It has interests in eight natural gas interstate pipeline systems. The company has expected earnings growth of 12% for current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 30 days.

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