The broader U.S. equity markets witnessed a downtrend over the past three trading days on the trot, as investors began to look beyond the technology sector with an intensified sell-off. Several blue-chip tech firms were in the red, as investors gravitated away from riskier bets en masse on fears of AI disruption to other attractively valued sectors of the market. A steep decline in the cryptocurrency added to the cacophony as Bitcoin sank below the key level of $70,000 to as low as $60,062.00 with increasing pessimism.
Concerns related to the weakness in the labor market added to the downbeat sentiment, with the ADP report portraying fewer-than-expected job additions in January. 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, Lam Research Corporation LRCX and KLA Corporation KLAC 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:
Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, the company manufactures and markets high-performance memory and storage technologies, including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Its solutions are used in leading-edge computing, consumer, networking and mobile products.
The stock has jumped a whopping 305% in the past year but declined 12.1% in the past week. Micron Technology has a Momentum Score of B.
Headquartered in Fremont, CA, Lam Research supplies wafer fabrication equipment and services to the semiconductor industry. In addition, it serves the related markets that rely on semiconductor processes and require production-proven manufacturing capabilities, such as complementary metal-oxide-semiconductor image sensors and micro-electromechanical systems (MEMS).
The stock has soared 157.5% in the past year but lost 14.1% in the past week. Lam Research has a Momentum Score of A.
San Jose, CA-based KLA Corporation offers process control and process-enabling solutions for manufacturing wafers, integrated circuits, and printed circuit boards. The company is one of the leading providers of innovative products in the electronics industry with active contribution from expert teams of physicists, engineers, data scientists and problem-solvers.
The stock has surged 74.7% in the past year but lost 21% in the past week. KLA Corporation has a Momentum Score of A.
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Micron Technology, Inc. (MU): Free Stock Analysis Report KLA Corporation (KLAC): Free Stock Analysis Report Lam Research Corporation (LRCX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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