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3 Momentum Anomaly Stocks in Focus Amid Coronavirus Turmoil
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U.S. stocks rallied yesterday as investors gained confidence from stabilizing crude oil markets, some better-than-expected corporate earnings reports and expectations for Congress to roll out another fiscal stimulus package. The Dow added roughly 2% to close at 23,475.82, after dropping more than 1,200 points to start the week. The S&P rose 2.3% to 2,799.31 and the tech-heavy Nasdaq advanced 2.8% to 8,495.38.
Global demand for oil has declined dramatically, with major economies effectively frozen due to lockdowns imposed by authorities to contain the spread of the coronavirus. The oil markets have been bearish since late January when COVID-19 compelled China, the world’s largest crude importer, into lockdown. The rapid spread of the virus to other parts of the world, which stopped air travel, land transportation and factory activity, took the steam from oil prices. In fact, prices tanked 70% from January to April. Despite dismal economic data, market bulls are soldiering on with claims that the worst days are behind us.
Wednesday’s surge is partly a response to states such as Georgia and Florida announcing plans to reopen their economies in the upcoming days. The rebound stood in contrast to the downward price action in oil so far this week. It followed an announcement from President Trump, wherein he had instructed the U.S. Navy to fire on any Iranian ships that harass it in the Gulf. On Monday, the WTI contract for May delivery plunged below zero to trade in negative territory for the first time in history.
Meanwhile, as of Wednesday afternoon, there were more than 2.5 million confirmed COVID-19 cases and 179,000 deaths worldwide, according to Johns Hopkins University data. The United States has the most number of infection cases globally at 826,000 and more than 45,000 deaths. 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 might work wonders.
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, hoping for a rebound in prices.
Meanwhile, 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 the three stocks that made it through this screen:
The Clorox Company (CLX - Free Report) is a leading multinational manufacturer as well as marketer of consumer and professional products. The stock has gained 24.5% in the past year but dropped 1.9% in the past week. It has a Momentum Score of A.
Headquartered in Mountain View, CA, Livongo Health, Inc. provides an integrated suite of solutions for the healthcare industry in North America. The stock has lost 0.9% in the past year and has a Momentum Score of B. Shares of the company have declined 1.9% in the past week.
AAON, Inc. (AAON - Free Report) is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment. The stock has lost 7.3% in the past year and has a Momentum Score of B. Shares of the company have declined 2.2% in the past week.
You can get 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 in Focus Amid Coronavirus Turmoil
U.S. stocks rallied yesterday as investors gained confidence from stabilizing crude oil markets, some better-than-expected corporate earnings reports and expectations for Congress to roll out another fiscal stimulus package. The Dow added roughly 2% to close at 23,475.82, after dropping more than 1,200 points to start the week. The S&P rose 2.3% to 2,799.31 and the tech-heavy Nasdaq advanced 2.8% to 8,495.38.
Global demand for oil has declined dramatically, with major economies effectively frozen due to lockdowns imposed by authorities to contain the spread of the coronavirus. The oil markets have been bearish since late January when COVID-19 compelled China, the world’s largest crude importer, into lockdown. The rapid spread of the virus to other parts of the world, which stopped air travel, land transportation and factory activity, took the steam from oil prices. In fact, prices tanked 70% from January to April. Despite dismal economic data, market bulls are soldiering on with claims that the worst days are behind us.
Wednesday’s surge is partly a response to states such as Georgia and Florida announcing plans to reopen their economies in the upcoming days. The rebound stood in contrast to the downward price action in oil so far this week. It followed an announcement from President Trump, wherein he had instructed the U.S. Navy to fire on any Iranian ships that harass it in the Gulf. On Monday, the WTI contract for May delivery plunged below zero to trade in negative territory for the first time in history.
Meanwhile, as of Wednesday afternoon, there were more than 2.5 million confirmed COVID-19 cases and 179,000 deaths worldwide, according to Johns Hopkins University data. The United States has the most number of infection cases globally at 826,000 and more than 45,000 deaths. 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 might work wonders.
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, hoping for a rebound in prices.
Meanwhile, 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 the three stocks that made it through this screen:
The Clorox Company (CLX - Free Report) is a leading multinational manufacturer as well as marketer of consumer and professional products. The stock has gained 24.5% in the past year but dropped 1.9% in the past week. It has a Momentum Score of A.
Headquartered in Mountain View, CA, Livongo Health, Inc. provides an integrated suite of solutions for the healthcare industry in North America. The stock has lost 0.9% in the past year and has a Momentum Score of B. Shares of the company have declined 1.9% in the past week.
AAON, Inc. (AAON - Free Report) is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment. The stock has lost 7.3% in the past year and has a Momentum Score of B. Shares of the company have declined 2.2% in the past week.
You can get 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.