Buy 3 Momentum Anomaly Stocks as Markets Dip on Tech Pullback

The broader U.S. equity markets have had a rough patch over the past few days as a pullback in some blue-chip tech stocks dragged down the overall market. This, in turn, propelled the bond yields, with the 10-year Treasury yield rising to 4.2%. Solid economic data further supported the higher bond yields, with a strong upward revision in the second-quarter GDP growth to 3.8% from the previously reported tally of 3.3% portraying strength in the economy. The job market also showed character, with weekly jobless claims falling to 218,000 from 232,000 compared with broad-based expectations of 235,000 unemployment claims. 

The solid job market conditions and upwardly revised GDP estimates raised concerns about whether the Federal Reserve will cut the interest rate anytime soon after lowering it last week by a quarter percentage point in a range of 4.00%-4.25%. Investors now await the personal consumption expenditures price index reports for August (slated to be released later this week) for clarity on the Fed rate cut policy. 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 Wolverine World Wide, Inc. WWW, Carpenter Technology Corporation CRS and Astera Labs, Inc. ALAB 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 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 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 seven stocks that made it through this screen:

Headquartered in Michigan, Wolverine is engaged in the designing, manufacturing and distribution of a wide variety of casual as well as active apparel and footwear. The company also manufactures children’s footwear and specially designed boots and accessories for industrial purposes. Wolverine is predominantly renowned for a range of footwear styles and designs of shoes, boots and sandals under recognized brand names such as Bates, Chaco, Cat, Hush Puppies, Harley-Davidson, Hytest, Merrell, Saucony, Stride Rite, Sweaty Betty and Wolverine. Non-footwear products of the company mainly include eyewear, watches, gloves, socks, handbags and plush toys.

The stock has surged 62.5% in the past year but declined 8.2% in the past week. Wolverine has a Momentum Score of B. 

Philadelphia, PA-based Carpenter Technology is a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels and tool steels as well as 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 (AM) processes and soft magnetics applications. It has expanded AM capabilities to provide a complete “end-to-end” solution to accelerate materials innovation and streamline parts production. 

The stock has soared 48.9% in the past year but lost 5.8% in the past week. Carpenter Technology has a Momentum Score of B.

Based in Santa Clara, CA, Astera Labs develops semiconductor-based connectivity solutions tailored for cloud and AI infrastructure. Its Intelligent Connectivity Platform includes high-speed, mixed-signal semiconductor products combined with COSMOS, a proprietary system management and optimization software suite. The company’s solutions are designed to enhance performance, bandwidth and reliability in next-generation data centers.

The stock has skyrocketed 266.5% in the past year but declined 20.3% in the past week. Astera Labs 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.

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