The year 2014 broke all the promises it had for the U.S. stock market. Oil prices played foul – crude crashed to the five-and-a-half-year low of below $55 per barrel – bringing volatility back into the market. This plugged the rally in stocks and shook global economic growth.
As such, the Dow Jones Industrial Average witnessed the biggest weekly decline since Sep 2011 while the S&P 500 ended the week with the biggest loss in two-and-a-half years. The major indices dropped in five of the six trading sessions with both Dow and the S&P 500 declining over 4% from their all-time high reached on December 5.
The sell-off was also sparked off by the sluggish international economic fundamentals such as uncertainty in China, recession in Japan, a struggling Europe, recent Greek stock market crash, and a slowdown in emerging economies. Meanwhile, the CBOE Volatility Index (VIX) or the fear level climbed over 77% last week.
Is the U.S. Economy Threatened?
The bear will chase the stock market if oil price keeps going down or if global economies can’t manage to tide over. Is the world’s largest economy safe? Investors should note that the U.S. is showing strong resilience to the ongoing slowdown and is on a growth path. The economy recorded its two strongest quarters of growth back to back in over a decade and is on track for the strongest annual job growth since late 1999.
Moreover, stepped-up economic activities, improving business conditions, renewed optimism in housing recovery and rising consumer confidence will continue to support the U.S. stock markets. While slumping oil prices are raising fears of global deflation and economic slowdown, low gasoline prices are actually driving consumer spending, which accounts for more than two-thirds of the U.S. economic growth.
Amid widespread volatility, investors should take great precaution while trading. Safer bets would be momentum stocks, picking which would be a winning strategy for higher returns in a short spell and in every market environment. The strategy looks to capture profits by buying hot stocks, which have shown an uptrend over the past few weeks or the past few months (read more: 4 Steps to Mastering Momentum Stocks).
How to Pick Right Stocks?
While handpicking momentum stocks is quite a daunting task, Zacks stock screener makes this process simpler. First, we have selected the stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy). Then we narrowed down the list by screening through the following metrics:
1. Positive earnings surprise in the recent quarter
2. Current year earnings estimate revision on the rise over the past one month
3. Stock outperforming the market (here, we have taken 4-week and 12-week price changes that are higher than S&P 500)
4. Relative price strength of more than 1
5. Current price within 15% of the 52-week highs
6. Current price above the 50-Day Simple Moving Average (SMA)
Finally, we found three stocks that are likely to continue to trend higher irrespective of market conditions. All of these have a Zacks Rank #2 (Buy), suggesting their outperformance in the days ahead as well:
Pantry Inc. (PTRY)
Based in Cary, NC, The Pantry Inc. is a leading convenience store operator in the Southeastern United States. Its stores provide a wide range of merchandise, as well as fuel and other ancillary services including tobacco products, beer, soft drinks, self-service fast food and beverages, publications, dairy products, groceries, health and beauty aids, video games and money orders.
The company has delivered a positive earnings surprise of 34.69% in the last reported quarter, and seen estimates rising by 23 cents to $1.15 per share for the current year over the past one month. The stock is up about 10.5% and 36.9% over the past 4 weeks and 12 weeks, respectively, and is trading above its 50-Day SMA of $25.39.
PTRY hit a new 52-week high of $30.24 in yesterday’s trading session and belongs to a solid Zacks Industry Rank in the top 5% (read more: Can the Uptrend Continue for Pantry?).
Build-A-Bear Workshop Inc. (BBW)
Based in St. Louis, MO, Build-A-Bear Workshop is a specialty global retailer offering an interactive make-your-own stuffed animal retail-entertainment experience. It has 30 styles of animals to be stuffed, and provides their clothing, shoes and accessories, and other brands of toys and novelty items.
The company surprised with a positive earnings upside of 200% in the last quarter and has seen upward earnings estimate revision of 3 cents for the current year to 59 cents. The stock hit its 52-week high of $21.22 on December 11 and is currently trading above its 50-Day SMA of $17.18. This suggests a strong jump of 12.5% and 55.4% in BBW share price over the last 4 weeks and 52 weeks, respectively (read more: Build-A-Bear Shares March Higher, Can It Continue?).
Build-A-Bear Workshop has a solid Zacks Industry Rank in the top 9%, suggesting strong growth in the coming days.
Tetraphase Pharmaceuticals Inc. (TTPH)
Based in Watertown, MA, Tetraphase Pharmaceuticals is a clinical stage biopharmaceutical company that develops various antibiotics for the treatment of serious and life-threatening multi-drug resistant infections. Tetraphase is rapidly advancing its clinical pipeline of potent novel antibiotics. Its major product, eravacycline, is an intravenous and oral antibiotic for the treatment of multi-drug resistant Gram-negative infections.
The company delivered a positive earnings surprise of 14.06% in the last quarter. The Zacks Consensus Estimate for the current year is pegged at a loss of $2.35, narrower than the loss of $2.41 a month ago. The stock reached a 52-week high of $32.93 on December 10, climbing nearly 36% over the past four weeks and 78.7% over the past 12 weeks. Further, TTPH is trading above its 50-Day SMA of $24.86 and has a Zacks Industry Rank in the top 27%.
Bottom Line
Despite the recent sell-off in equities, these stocks are gaining momentum and clearly outpacing the broad market by wide margins from a short-term look. As a result, these stocks could be attractive choices for investors seeking to play in the market but concerned about the market direction.
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