The broader U.S. equity markets witnessed intense volatility over the past few trading days as President Trump’s tariff war took its toll. Although Trump had earlier indicated that tariffs on foreign countries would not be imposed immediately, the sudden change in the trade policies toward two of its closest allies rattled investor confidence and hurt the markets. As Washington imposed a 25% levy on steel and aluminum imports from Canada and Mexico, Canada retaliated with a proposed 25% import duty on more than $20 billion worth of U.S. goods. The European Union followed suit and announced counter-tariffs on 26 billion euros ($28.33 billion) worth of U.S. imports beginning in April.
However, a better-than-expected CPI (consumer price index) reading for February, indicating that inflation rose 0.2% from the prior month and 2.8% on an annual basis, eased recession concerns. Amid the vagaries of the market and related 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 Masimo Corporation MASI, Robinhood Markets, Inc. HOOD and Discover Financial Services DFS 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.
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 stocks out of the seven that made it through this screen:
Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems, hospital automation and connectivity solutions, remote monitoring devices and consumer health products. It primarily sells its healthcare products to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through its direct sales force, distributors and original equipment manufacturer (OEM) partners. The stock has surged 25% in the past year but declined 9.9% in the past week. Masimo has a Momentum Score of A.
Headquartered in Menlo Park, CA, Robinhood Markets is a financial services company that offers trading services in crypto, stocks, options and ETFs, cash management, margin and securities lending, and Robinhood Gold. The company aims to democratize finance through its commission-free trading model, which was launched in 2013 with no account minimums. The stock has rallied 126.8% in the past year but declined 19.1% in the past week. Robinhood Markets has a Momentum Score of A.
Based in Riverwoods, IL, Discover Financial Services is a digital banking and payment services company in the United States. It offers credit cards, personal and home loans, and deposit products. The stock has surged 29.9% in the past year but declined 9.6% in the past week. Discover Financial Services 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.
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.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Discover Financial Services (DFS) : Free Stock Analysis Report
Masimo Corporation (MASI) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
