2 Momentum Anomaly Picks as Solid Earnings Boost Markets

The broader U.S. equity markets witnessed a roller-coaster ride over the past few trading days hitting record highs on strong quarterly performance from hitherto reported companies before falling the next day only to rise again to a new record-high tally. This uptrend was fueled by cooling inflation and solid economic metrics that calmed investor nerves that the Federal Reserve was cutting rates aggressively because of a potential slowdown.

With solid labor market conditions, the economy appears to be back on the growth track, cooling recessionary fears. However, escalating geopolitical tensions in the Middle East cast a latent threat. 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 Carpenter Technology Corporation CRS and Archrock, Inc. AROC 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 two stocks that made it through this screen:

Philadelphia, PA-based Carpenter Technology is a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, tool steels and drilling tools. The company is a leader in premium specialty alloys, including titanium, nickel and cobalt, as well as alloys specifically engineered for additive manufacturing processes and soft magnetics applications. The stock has surged 151.7% in the past year but declined 1.5% in the past week. Carpenter Technology has a Momentum Score of A. 

Headquartered in Houston, TX, Archrock operates as an energy infrastructure firm in the United States with a primary focus on midstream natural gas compression and a commitment to helping its customers produce, compress and transport natural gas in a safe and environmentally responsible way. The stock has rallied 65.2% in the past year but gained a mere 1.1% in the past week. Progressive has a Momentum Score of B.

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.

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Carpenter Technology Corporation (CRS): Free Stock Analysis Report
 
Archrock, Inc. (AROC): Free Stock Analysis Report

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