Buy 3 Momentum Anomaly Stocks as Markets Fall on Middle East Woes

The broader U.S. equity markets witnessed a steady downtrend over the past couple of days as the Middle East tensions escalated, with the United States attacking three nuclear sites in Iran. With a retaliatory strike against the United States on the cards, Iran has intensified its fight against Israel with a barrage of missiles hitting multiple sites across the country. The heightened geopolitical tensions have further led to apprehensions about their possible fallout on the oil and gas industry. The market uncertainty dragged down shares as investors began to look for safe-haven assets.    

To add to the woes, the Federal Reserve Chairman Jerome Powell hinted that he would wait for more clarity on the impact of President Trump’s tariffs on inflation before proceeding with any rate cut. Amid the vagaries of the market and related 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 Palomar Holdings, Inc. PLMR, Franco-Nevada Corporation FNV and Paycom Software, Inc. PAYC 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 three stocks out of the ten that made it through this screen:

Headquartered in La Jolla, CA, Palomar is a rapidly growing insurance firm focused on the provision of catastrophe insurance for personal and commercial property. It provides specialty property insurance products for both individuals and businesses. Palomar’s products are distributed through multiple channels, including retail agents, program administrators, wholesale brokers and in partnership with other insurance companies. The stock has surged 99.2% in the past year but declined 3.3% in the past week. Palmar has a Momentum Score of B. 

Toronto, Canada-based Franco-Nevada operates as a gold-focused royalty and stream firm with additional interests in silver, platinum group metals (PGM), oil & gas and other resource assets. Franco-Nevada has a diversified portfolio of 54 producing assets consisting of four larger cash-flowing assets — Antamina, Antapaccay, Candelaria and Cobre Panama and interests in 41 advanced assets (which are not yet producing) and interests in 223 exploration-stage mining properties. The company also holds interests in 55 energy assets. The stock has rallied 42.1% in the past year but lost 3.5% in the past week. Franco-Nevada has a Momentum Score of A.

Headquartered in Oklahoma City, Paycom is a cloud-based human capital management (HCM) software-as-a-service solution provider for both employee records and talent management processes. Paycom serves nearly 37,500 clients or nearly 19,400 customers based on Parent Company Grouping. Its human resource services include retirement services administration, workers’ compensation administration, employee benefit solutions, professional employer organization and other administrative services for businesses. The stock has surged 57.5% in the past year but declined 5.2% in the past week. Paycom 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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