Heightened market volatility returned to the broader U.S. equity markets as the Iran-U.S. war resumed, with both parties launching fresh strikes. This affected the free passage of commercial vessels through the Strait of Hormuz, leading to spiraling oil prices that pulled down the stock market. However, easing inflation readings for June eased concerns of a near-term interest rate hike, triggering a short-term market rally that was further supported by a spirited performance by semiconductor stocks. But concerns over artificial intelligence (AI) spending weighed on investor sentiments and dragged the overall markets lower.
The spotlight is now on the Federal Reserve Chairman Kevin Warsh as investors look for cues to the monetary policy and gauge an idea of the future stock market direction. Amid the vagaries of the market, 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 Micron Technology, Inc. MU, Penguin Solutions, Inc. PENG and Bloom Energy Corporation BE 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. Therefore, this strategy is quite tricky to implement, as detecting these trends is not easy. 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 long-term price momentum and a short-term pullback in price.
Screening Parameters for Momentum Anomaly Stocks
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 of the four stocks that made it through this screen:
Headquartered in Boise, ID, Micron manufactures and sells memory and storage products across the globe. It serves the data center, PC, graphics, networking, automotive, industrial and consumer embedded markets, as well as the smartphone and other mobile-device markets.
The stock has soared 653.3% over the past year but lost 14% over the past week. Micron has a Momentum Score of A.
Headquartered in Fremont, CA, Penguin is a leading provider of memory and AI infrastructure, powering business enterprises, sovereign AI initiatives and neocloud providers. It operates globally through an extensive network of R&D, manufacturing and sales locations.
The stock has surged 165.1% over the past year but declined 19% over the past week. Penguin has a Momentum Score of A.
Headquartered in San Jose, CA, Bloom Energy manufactures, sells and installs solid oxide fuel cell systems for on-site power generation in the United States and internationally. It empowers enterprises to meet soaring energy demands and responsibly take charge of their power needs.
The stock has surged 750.4% in the past year but declined 19.6% in the past week. Bloom Energy has a Momentum Score of A.
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Micron Technology, Inc. (MU): Free Stock Analysis Report
Bloom Energy Corporation (BE): Free Stock Analysis Report
Penguin Solutions, Inc. (PENG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).