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3 Momentum Anomaly Stocks to Consider Amid Coronavirus Woes
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The coronavirus pandemonium has compelled governments across the globe to consider various stimulus packages to reinvigorate the economy as well as impose stiff restrictions on travel and public gatherings to minimize loses by containing the spread of the disease. Yet, the economic fallout is being severely felt with several indicators declining sharply. The world economy will likely go into recession due to the pandemic, with two-third of the population living in developing countries facing unprecedented economic damage.
The March jobs report surprised economists as it showed that the U.S. economy lost 701,000 jobs last month compared with 100,000 expected. It reflected that the early impact of the coronavirus pandemic was much worse than they anticipated, signaling further damage to the economy. With large parts of the United States now under lockdown, millions of people working in retail, restaurants, travel, hotels and leisure industries have lost their jobs and the losses are spreading. Oil and gas companies are laying off workers as oil prices collapse and engineering firms are cutting staff as the airline industry grinds to a halt.
Last Tuesday, U.S. President Donald Trump warned of a “very painful” two weeks as the country battles with a coronavirus surge. The Fed is trying to protect the financial system and insulate the broader economy where short-term pain could turn into long-term suffering if credit crunches prevent companies from obtaining the cash they need to operate, forcing them to lay off workers, delay payments to vendors and shut down factories.
Although a coronavirus-triggered downturn appears inevitable, policymakers’ timely response can help determine how deep it is, how long it lasts and how quickly the economy bounces back from it. As the world gears up to develop a treatment for this deadly disease, economic stimulus packages and an integrated global approach to fight the menace could work wonders. In the meantime, let us all unite against this invisible enemy and advocate social distancing efforts to help in containing the disease.
With this in mind, reacting emotionally to volatile trends can cause more damage to a portfolio’s return than a downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on the frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, there are investors who 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 mistakes. So, basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Momentum investing is, thus, based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price, and rake in handsome gains.
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.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. 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 prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure 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 four stocks that made it through this screen:
DaVita Inc. (DVA - Free Report) is a health care provider focused on transforming care delivery to improve quality of life for patients globally. It is one of the largest providers of kidney care services in the United States. The stock has added 18.6% in the past year but declined 10.4% over the past week. It has a Momentum Score of A.
Headquartered in Englewood, CO, EchoStar Corporation (SATS - Free Report) is a premier global provider of satellite communication solutions. It is a pioneer in secure communications technologies through its Hughes Network Systems and EchoStar Satellite Services business segments. The stock has lost 25.4% in the past year and has a Momentum Score of A. Shares of the company have lost 8.6% over the past week.
PennyMac Financial Services, Inc. (PFSI - Free Report) is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. The stock has lost 24.8% in the past year and has a Momentum Score of A. Shares of the company have declined 28.2% over the past week.
You can get the remaining stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own 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.
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.
Image: Bigstock
3 Momentum Anomaly Stocks to Consider Amid Coronavirus Woes
The coronavirus pandemonium has compelled governments across the globe to consider various stimulus packages to reinvigorate the economy as well as impose stiff restrictions on travel and public gatherings to minimize loses by containing the spread of the disease. Yet, the economic fallout is being severely felt with several indicators declining sharply. The world economy will likely go into recession due to the pandemic, with two-third of the population living in developing countries facing unprecedented economic damage.
The March jobs report surprised economists as it showed that the U.S. economy lost 701,000 jobs last month compared with 100,000 expected. It reflected that the early impact of the coronavirus pandemic was much worse than they anticipated, signaling further damage to the economy. With large parts of the United States now under lockdown, millions of people working in retail, restaurants, travel, hotels and leisure industries have lost their jobs and the losses are spreading. Oil and gas companies are laying off workers as oil prices collapse and engineering firms are cutting staff as the airline industry grinds to a halt.
Last Tuesday, U.S. President Donald Trump warned of a “very painful” two weeks as the country battles with a coronavirus surge. The Fed is trying to protect the financial system and insulate the broader economy where short-term pain could turn into long-term suffering if credit crunches prevent companies from obtaining the cash they need to operate, forcing them to lay off workers, delay payments to vendors and shut down factories.
Although a coronavirus-triggered downturn appears inevitable, policymakers’ timely response can help determine how deep it is, how long it lasts and how quickly the economy bounces back from it. As the world gears up to develop a treatment for this deadly disease, economic stimulus packages and an integrated global approach to fight the menace could work wonders. In the meantime, let us all unite against this invisible enemy and advocate social distancing efforts to help in containing the disease.
With this in mind, reacting emotionally to volatile trends can cause more damage to a portfolio’s return than a downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on the frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, there are investors who 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 mistakes. So, basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Momentum investing is, thus, based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price, and rake in handsome gains.
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: No matter whether it is a good market or bad, stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. 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 prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure 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 four stocks that made it through this screen:
DaVita Inc. (DVA - Free Report) is a health care provider focused on transforming care delivery to improve quality of life for patients globally. It is one of the largest providers of kidney care services in the United States. The stock has added 18.6% in the past year but declined 10.4% over the past week. It has a Momentum Score of A.
Headquartered in Englewood, CO, EchoStar Corporation (SATS - Free Report) is a premier global provider of satellite communication solutions. It is a pioneer in secure communications technologies through its Hughes Network Systems and EchoStar Satellite Services business segments. The stock has lost 25.4% in the past year and has a Momentum Score of A. Shares of the company have lost 8.6% over the past week.
PennyMac Financial Services, Inc. (PFSI - Free Report) is a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. The stock has lost 24.8% in the past year and has a Momentum Score of A. Shares of the company have declined 28.2% over the past week.
You can get the remaining stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own 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.