1 Momentum Stock to Consider Right Now and 2 We Ignore

The stocks in this article are all trading near their 52-week highs. This strength often reflects positive developments such as new product launches, favorable industry trends, or improved financial performance.

While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. All that said, here is one stock we think lives up to the hype and two best left ignored.

Two Stocks to Sell:

Ziff Davis (ZD)

One-Month Return: +31.8%

Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ:ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.

Why Do We Think ZD Will Underperform?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 4.1% annually
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.3 percentage points

Ziff Davis is trading at $42.36 per share, or 6.2x forward P/E. Dive into our free research report to see why there are better opportunities than ZD.

Archer-Daniels-Midland (ADM)

One-Month Return: -0.4%

Transforming crops from the world's most productive agricultural regions into everyday essentials, Archer-Daniels-Midland (NYSE:ADM) processes and transports agricultural commodities like grains and oilseeds while manufacturing ingredients for food, beverages, feed, and industrial applications.

Why Are We Out on ADM?

1. Sales tumbled by 7.5% annually over the last three years, showing consumer trends are working against its favor
2. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 6.5%
3. Earnings per share have dipped by 24.2% annually over the past three years, which is concerning because stock prices follow EPS over the long term

At $67.05 per share, Archer-Daniels-Midland trades at 16.5x forward P/E. Check out our free in-depth research report to learn more about why ADM doesn’t pass our bar.

One Stock to Watch:

AbbVie (ABBV)

One-Month Return: +2.8%

Born from a 2013 spinoff of Abbott Laboratories' pharmaceutical business, AbbVie (NYSE:ABBV) is a biopharmaceutical company that develops and markets medications for autoimmune diseases, cancer, neurological disorders, and other complex health conditions.

Why Do We Like ABBV?

1. Enormous revenue base of $61.16 billion gives it economies of scale and advantages over new entrants due to the industry’s regulatory complexity
2. Robust free cash flow margin of 36.3% gives it many options for capital deployment
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

AbbVie’s stock price of $229.50 implies a valuation ratio of 15.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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