Momentum investing revolves around the idea of following a stock's recent trend in either direction. In "long context," investors will be essentially be "buying high, but hoping to sell even higher." With this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving that way. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
While many investors like to look for momentum in stocks, this can be very tough to define. There is a lot of debate surrounding which metrics are the best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at The Charles Schwab Corporation (SCHW), a company that currently holds a Momentum Style Score of A. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. The Charles Schwab Corporation currently has a Zacks Rank of #2 (Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of "A or B" outperform the market over the following one-month period.
You can see the current list of Zacks #1 Rank Stocks here >>>
Set to Beat the Market?
In order to see if SCHW is a promising momentum pick, let's examine some Momentum Style elements to see if this company holds up.
Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For SCHW, shares are up 1.67% over the past week while the Zacks Financial - Investment Bank industry is up 4.27% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 5.13% compares favorably with the industry's 8.13% performance as well.
While any stock can see its price increase, it takes a real winner to consistently beat the market. That is why looking at longer term price metrics -- such as performance over the past three months or year -- can be useful as well. Shares of The Charles Schwab Corporation have increased 22.18% over the past quarter, and have gained 22.29% in the last year. On the other hand, the S&P 500 has only moved 19.67% and 12.87%, respectively.
Investors should also take note of SCHW's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. Right now SCHW is averaging 7,443,516 shares for the last 20 days..
Earnings Outlook
The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with SCHW.
Over the past two months, 8 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost SCHW's consensus estimate, increasing from $4.24 to $4.39 in the past 60 days. Looking at the next fiscal year, 9 estimates have moved upwards while there have been no downward revisions in the same time period.
Bottom Line
Given these factors, it shouldn't be surprising that SCHW is a #2 (Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep The Charles Schwab Corporation on your short list.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Charles Schwab Corporation (SCHW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
