Momentum investing literally means “that which goes up will continue to go up for a period, and that which goes down will continue to go down.” Thus, momentum investors buy high on the anticipation that the asset (in our case stocks) will only ascend further in the short-to-intermediate term.
The trick to achieve success in momentum investing is based on the risk-appetite of the investor. Momentum investing is not for the faint-hearted and success comes only to those who can effectively ride the upswing and brave the downswing of the market with the same élan.
Momentum investing calls for a continuous appraisal of stocks, which ensures that an investor does not get into a beaten-down name and overlooks a thriving one. This characteristic makes the style perfectly suitable for the current market scenario, where corporate earnings growth continues to disappoint.
Meanwhile, earnings estimates for the first quarter of 2016 have come down significantly. Total S&P 500 earnings are currently expected to decline 10% on a year-over-year basis, a sharp drop from what was originally expected at the beginning of 2016.
However, we note that the earnings weakness has made several grand stocks available at attractive prices. This coupled with an improving U.S. domestic economic scenario, increasing personal consumption, strengthening of labor market and an expected recovery in oil prices are key growth catalysts.
Moreover, the Federal Reserve expects only a couple of rate hikes in 2016, down from four predicted earlier, which comes as a heavy breather for the equity market. We expect these to provide significant momentum to the market in the coming months.
Our Picks
We use our style score system to pick stocks that are showing momentum now. Back-tested results show that stocks with Style Scores of ‘A’ or ‘B,’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) handily outperform other stocks.
We have identified four stocks that flaunt a Zacks Rank #1 and Momentum Style Score of ‘A’. At the same time, we have taken into consideration stocks which closed below $10, ensuring the best bargain for you.
Vivint Solar Inc. (VSLR – Snapshot Report) – Headquartered in Provo, Utah, Vivint Solar is a provider of residential solar energy systems in the U.S. It designs, installs, and maintains cost-effective solar energy systems. The company also offers photovoltaic installation software products and devices.
