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Top 3 Momentum Anomaly Stocks to Buy on Phase-One Trade Deal
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The “phase one” U.S.-China trade deal, which is anticipated to almost double U.S. exports to China over the next two years, is laudable. The deal, announced after more than two-and-a half years of on-and-off negotiations between Washington and Beijing, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products.
The development suspended a threatened round of U.S. tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday. The United States further agreed to halve the tariff rate to 7.5% on Chinese goods worth $120 billion. China has pledged to better protect U.S. intellectual property to curb the coerced transfer of American technology to Chinese firms, to open its financial services market to U.S. firms and to avoid manipulation of its currency.
However, the deal is a phased achievement and does not mean that the trade dispute is settled once and for all. With that in mind, reacting emotionally to volatile trends can cause more damage to a portfolio’s return than a downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on the frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, there are investors who are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices.
On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such mistakes. So, basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Momentum investing is, thus, based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price, and rake in handsome gains.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This item 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.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. 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 prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure 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 six stocks that made it through this screen:
Ubiquiti Inc. (UI - Free Report) develops networking technology for service providers, enterprises, and consumers worldwide. The stock has gained 80% in the past year but declined 5% over the past week. It has a Momentum Score of A.
TopBuild Corp. (BLD - Free Report) engages in the installation and distribution of insulation and other building products to the United States construction industry. The stock has surged 137% in the past year and has a Momentum Score of A. Shares of the company have lost 3.1% over the past week.
Murphy USA Inc. (MUSA - Free Report) engages in the marketing of retail motor fuel products and convenience merchandise. The stock has added more than 55% in the past year but fell 2.1% over the past week. It 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 own 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.
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.
Image: Bigstock
Top 3 Momentum Anomaly Stocks to Buy on Phase-One Trade Deal
The “phase one” U.S.-China trade deal, which is anticipated to almost double U.S. exports to China over the next two years, is laudable. The deal, announced after more than two-and-a half years of on-and-off negotiations between Washington and Beijing, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products.
The development suspended a threatened round of U.S. tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday. The United States further agreed to halve the tariff rate to 7.5% on Chinese goods worth $120 billion. China has pledged to better protect U.S. intellectual property to curb the coerced transfer of American technology to Chinese firms, to open its financial services market to U.S. firms and to avoid manipulation of its currency.
However, the deal is a phased achievement and does not mean that the trade dispute is settled once and for all. With that in mind, reacting emotionally to volatile trends can cause more damage to a portfolio’s return than a downturn. When value or growth investing fails to fetch sustained profits, one should explore another time-tested winning strategy that simply bets on the frontrunner stocks. This is known as momentum investing.
At the core, momentum investing is buying high, selling higher. It is based on the idea that once a stock establishes a trend, it is likely to continue in that direction. There’s a whole list of behavioral biases that most investors exhibit. For instance, there are investors who are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices.
On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such mistakes. So, basically, it’s a way to profit from the general human tendency to extrapolate current trends into the future. Momentum investing is, thus, based on that gap in time, which exists before the mean reversion occurs i.e. before prices become rational again.
Here, we have created a strategy that will help investors get in on these fast movers when there is a short-term pullback in price, and rake in handsome gains.
Screening Parameters
Percentage Change in Price (52 Weeks) = Top #50: This item 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: No matter whether it is a good market or bad, stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Momentum Style Score of B or better: While ensuring solid momentum features, a Momentum Score of A or B knocks out a lot of the screening process, as it takes into account several factors including volume change and relative performance. 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 prices of the stocks should not be too low.
Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure 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 six stocks that made it through this screen:
Ubiquiti Inc. (UI - Free Report) develops networking technology for service providers, enterprises, and consumers worldwide. The stock has gained 80% in the past year but declined 5% over the past week. It has a Momentum Score of A.
TopBuild Corp. (BLD - Free Report) engages in the installation and distribution of insulation and other building products to the United States construction industry. The stock has surged 137% in the past year and has a Momentum Score of A. Shares of the company have lost 3.1% over the past week.
Murphy USA Inc. (MUSA - Free Report) engages in the marketing of retail motor fuel products and convenience merchandise. The stock has added more than 55% in the past year but fell 2.1% over the past week. It 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 own 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.