As we are nearing the close of 2015, a year that has experienced a rollercoaster ride with global macro headwinds including the Greek drama, concerns related to the Chinese economy and the still-low oil prices, the domestic front seems to be favorable spot for investing.
The Federal Reserve’s announcement of the most awaited increase in the benchmark federal funds rate after more than nine years certainly depicts how the U.S. economy has gradually gained traction since the 2008 financial crisis. The interest rate was hiked to 0.25%-0.50% from zero since December 2008.
Several factors that led to the interest rate hike include growth in household spending and business fixed investment, improving housing sector and declining unemployment in recent months.
The Dec 16, 2015 release stated that the Federal Open Market Committee, “currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.” Also the Committee remains confident that inflation will rise, over the medium term, to its target of 2%.
Notably, the S&P 500 gained 2.8% over the past three months while the Dow Jones Industrial Average gained 4.5%.
As we are gearing up for a new year, why not give a fresh makeover to our investment portfolio? Adding stocks with strong momentum seems to be a good strategy now.
While there is a class of investors who prefer to remain invested for a longer period in order to minimize inherent risk of a stock overtime and earn higher returns, there is another group who rather seek to capitalize on the existing market trend called Momentum investing so as to book short-term gains.
Momentum investors look to take advantage of upward trends or downward trends in a stock's price. A great way to pick momentum stocks is by analyzing the short-term price activity, for example for a period of 1 month to 6 months. A momentum investor tries to lock in gains from stocks witnessing surge in prices and cashing out later at a much higher price.
The Right Picks
With the help of our style score system, we have selected stocks with Zacks Momentum Style Score ‘A’ with price movement of more than 5% in the past 12 weeks. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Also, we have considered EPS growth of more than 1% for the current year.
Here are the five stocks that met the criteria:
E*TRADE Financial Corporation ETFC: The New York based firm is engaged in providing financial services including online brokerage and related banking products and services to retail investors. Recently, the company received a credit rating upgrade from Moody's Investors Service.
Notably, the agency raised E*TRADE’s issuer rating as well as senior unsecured bond rating to baa3 from ba2. This has effectively upgraded the company’s credit to investment grade status from its prior status of junk bond.
The upgrade came on the back of the company’s aggressive restructuring measures to improve its debt position and loan profile in September 2015. These measures included elimination of its $4.4-billion high-cost wholesale funding obligations from its balance sheet, which was accomplished in the third quarter of 2015.
Further, the company now targets a balance sheet size of $50 billion by early 2016. Additionally, marking the first time in over eight years, E*TRADE announced a repurchase authorization of up to $800 million of its common stock last month.
- Momentum Score: ‘A’
- Zacks Rank: 2
- Price Change in the Past 12 Weeks : 7.6%
- EPS Growth for the Current Year: 3.19%
Texas Instruments Inc. TXN: This company is an original equipment manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits. The company operates through two segments– Analog and Embedded Processing. The company has been integrating different functionalities into single devices, encouraging customers to go for the simpler, more power efficient and smaller form factor products that could potentially lower the cost of ownership and enable use in the smallest of applications.
It serves diverse end markets that balance individual ups and downs in multiple ways. For instance, the seasonality in the personal electronics business is balanced out by the industrial, communications and automotive segments.
Notably, Texas Instruments is focused on the Internet of Things (IoT). Much of the recent growth in the embedded business comes from microcontrollers, which are some of the enabling products. The scope of IoT is tremendous for semiconductor companies, since it connects every conceivable electronic device.
- Momentum Score: ‘A’
- Zacks Rank: 2
- Price Change in the Past 12 Weeks : 18.4%
- EPS Growth for the Current Year: 8.80%
Beacon Roofing Supply, Inc. BECN: Based in Virginia, it is one of the three largest roofing material distributors in the United States and Canada, with more than 90% of its sales coming from the U.S. Apart from selling roofing materials, namely, asphalt shingles and single-ply roofing, to both residential and non-residential markets, Beacon deals in complementary building materials such as vinyl siding, doors, windows, insulation and waterproofing systems.
Beacon Roofing reported record fourth-quarter fiscal 2015 earnings of 75 cents, a 56% increase year over year. For fiscal 2016, Beacon Roofing expects revenues in the range of $3.8 billion to $4 billion. Gross margin is expected to be in the range of 23% to 24% for the fiscal.
The company has increased the guidance from the previous range of 22.5% to 24%, given the confidence in the improvement actions implemented over the last couple of years. For fiscal 2016, the company is evaluating potential markets, which fit its strategy of continued expansion, for greenfield openings.
- Momentum Score: ‘A’
- Zacks Rank: 2
- Price Change in the Past 12 Weeks : 13.8%
- EPS Growth for the Current Year: 32.16%
Public Storage PSA: Based in California, the company is a leading self-storage real estate investment trust (REIT) in the U.S. The company acquires, develops, owns and operates self-storage facilities, generally on a month-to-month basis for business as well as personal use. Public Storage has facilities in 38 U.S. states and 7 Western European nations (operated under the “Shurgard” brand). Healthy performance of its U.S. portfolio, high brand value and a strong presence in key cities serve as growth drivers.
In addition, the company has been capitalizing on growth opportunities in upscale U.S. markets. In 2014, the company acquired 44 self-storage facilities for approximately $431 million that added a total of 3.4 million net rentable square feet to the company’s portfolio. In the first half of 2015, the company acquired 8 self-storage facilities for $72.2 million.
Moreover, in third-quarter 2015, Public Storage bought two self-storage facilities in Colorado, with 0.2 million net rentable square feet, for $26 million. Such acquisitions bode well for its long-term growth.
- Momentum Score: ‘A’
- Zacks Rank: 2
- Price Change in the Past 12 Weeks : 19.6%
- EPS Growth for the Current Year: 8.35%
Bristol-Myers Squibb Company BMY: The New York-based company is a global specialty biopharmaceutical company with its focus on discovering, developing and delivering innovative treatments for serious diseases. Key products at the company include Opdivo for metastatic melanoma and lung cancer, Sprycel for leukemia, Yervoy for metastatic melanoma, Baraclude for hepatitis B virus (HBV), Reyataz and Sustiva for HIV and Abilify for schizophrenia.
Bristol-Myers is looking to combat the generic threat hanging over its key drugs through partnering deals and acquisitions and introducing new products to augment its product portfolio. Bristol-Myers is highly active on the deal signing/acquisition front. The company’s recent deals include collaboration with The Medical University of South Carolina (MUSC) and the California Institute for Biomedical Research to boost its fibrotic disease pipeline.
The company updated its 2015 earnings guidance. Bristol-Myers now expects adjusted earnings per share in the range of $1.85 to $1.90 compared to the previous guidance of $1.70 to $1.80 per share. Bristol-Myers expects to generate worldwide revenues between $16 billion and $16.4 billion in 2015.
- Momentum Score: ‘A’
- Zacks Rank: 2
- Price Change in the Past 12 Weeks : 9.2%
- EPS Growth for the Current Year: 2.25%
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