The broader U.S. equity markets remained mostly on tenterhooks and eked out marginal gains yesterday after a sharp fall last Friday on concerns regarding the likelihood of a global trade war and a possible uptick in inflation. With President Trump planning to implement reciprocal tariffs on trading partners, shockwaves were felt across the globe. Moreover, a lower-than-expected consumer sentiment reading of 67.8 in February (according to a preliminary reading of the University of Michigan’s consumer sentiment index) pointed to a pickup in inflation. This led to a spike in 10-year Treasury yields, hitting the equity markets hard.
However, with Federal Reserve Chair Jerome Powell indicating that there would be no hasty moves by the Fed to ease the monetary policy amid solid economic strength, markets were quick to respond positively. Amid the uncertainty, 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 Brinker International, Inc. EAT, Virtu Financial, Inc. VIRT and SkyWest, Inc. SKYW 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. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play. 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 both long-term price momentum and a short-term pullback in price.
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 stocks out of the five that made it through this screen:
Based in Dallas, TX, Brinker owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. The company continues to focus on consumer convenience and continues with its multi-channel strategies to drive traffic. The stock has surged 270.6% in the past year but declined 12.7% in the past week. Brinker has a Momentum Score of A.
Headquartered in New York, NY, Virtu Financial is a market-leading financial services firm that leverages cutting-edge technology to provide execution services and data, analytics and connectivity products to its clients and deliver liquidity to the global markets. It provides a wide array of offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology. The stock has rallied 125.5% in the past year but declined 6.2% in the past week. Virtu Financial has a Momentum Score of A.
Based in St. George, UT, SkyWest operates as a regional airline in the United States through its subsidiary SkyWest Airlines. It offers high-quality regional service to airports located primarily in the Midwestern and Western United States as well as Mexico and Canada. The carrier mainly operates from Chicago (O’Hare), Denver, Houston, Los Angeles, Minneapolis, Phoenix, Salt Lake City, San Francisco and Seattle airports. The stock has surged 86% in the past year but declined 7.4% in the past week. SkyWest has a Momentum Score of A.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your 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.
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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.
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