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Buy 3 Momentum Anomaly Stocks as Markets Bask in Economic Strength

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The broader U.S. equity markets witnessed a steady uptrend over the past couple of days, buoyed by a solid economy, soothing concerns that the Federal Reserve was cutting rates aggressively because of a potential slowdown. The stock market rally was further propelled by cooling inflation, with data from the Personal Consumption Expenditure Price Index revealing that the 12-month inflation rate increased 2.2% in August – below the broad-based expectations of a 2.3% rise.

Initial jobless claims for the week ending Sept. 21, 2024, were better than expected at 218,000, a decline of 4,000 from the previous period. With solid labor market conditions, it appeared that the economy was back on the growth track, cooling recessionary fears. Amid the 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 Nordstrom, Inc. (JWN - Free Report) , Universal Health Services, Inc. (UHS - Free Report) and The Progressive Corporation (PGR - Free Report) 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 eight that made it through this screen:

Headquartered in Seattle, WA, Nordstrom is a leading fashion specialty retailer in the United States. The company offers an extensive selection of both branded and private-label merchandise, which are positioned in the upscale segment of the industry through a variety of channels. These include Nordstrom branded full-line stores — Nordstrom Rack stores, Jeffrey boutiques, clearance stores under the Last Chance name, Trunk Club clubhouses and Nordstrom Local. The stock has surged 47% in the past year but declined 3.6% in the past week. Nordstrom has a Momentum Score of B. 

King of Prussia, PA-based Universal Health owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. The company's range of services includes general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. The stock has gained 82.1% in the past year but declined 3.4% in the past week. Universal Health has a Momentum Score of B.  

Based in Mayfield Village, OH, Progressive is one of the major auto insurers in the country. Founded in 1965, it is a leading independent agency writer of private passenger auto coverage and the market share leader for motorcycle products since 1998. The stock has rallied 80.7% in the past year but lost 3.1% in the past week. Progressive 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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Universal Health Services, Inc. (UHS) - free report >>

Nordstrom, Inc. (JWN) - free report >>

The Progressive Corporation (PGR) - free report >>

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