Top Momentum Anomaly Stocks to Buy on Phase One Trade Deal

The U.S. market rally kicked into higher gear on Thursday as investors shifted focus to corporate earnings after an initial trade deal with China. The Dow added 267.44 points to hit 29,297.64, a day after closing above 29,000 for the first time. The S&P climbed 27.52 points to 3,316.81 and the technology-heavy Nasdaq jumped 98.43 points to 9,357.13.

On Wednesday, the formal signing of a phase one deal between the world’s two biggest economies put the so-called trade war on hold as far as many investors are concerned. President Trump called the agreement “a momentous step toward a future of fair and reciprocal trade” and one that “rights the wrong of the past.”

China’s chief trade negotiator, vice premier Liu He said that the deal was “conducive to world peace and prosperity.” Per the agreement, China will increase its purchases of U.S. agricultural, manufacturing and energy products, along with services, by more than $200 billion over the next two years.

It further comprises commitments by China to enforce intellectual property theft laws and a “bilateral evaluation and dispute resolution arrangement” that will encourage the United States and China to work jointly to resolve allegations of patent and copyright infringement. Not to forget, the deal is a phased achievement and does not mean that the trade dispute is settled once and for all.

Analysts expect company earnings to continue impressing on the back of robust business investment and emerging market economies. However, concerns about the impact of higher corporate taxes on profits could rise in the run up to the U.S. presidential election. This apart, rising wages are likely to reduce profit margins over the next several years.

With these 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 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 four of the eight stocks that made it through this screen:

Microchip Technology Incorporated MCHP manufactures and sells semiconductor products for various embedded control applications in the Americas, Europe and Asia. The stock has gained 40.2% in the past year and has a Momentum Score of A. Shares of the company have lost 1.4% over the past week.

HEICO Corporation HEI, through its subsidiaries, designs and sells aerospace, defense and electronic-related products and services in the United States and globally. The stock has surged 51.3% in the past year and has a Momentum Score of B. Shares of the company have lost 0.5% over the past week.

Pilgrim's Pride Corporation PPC engages in the production and distribution of fresh, frozen and value-added chicken products in the United States, the United Kingdom, Europe and Mexico. The stock has added more than 56% in the past year but fell 2.9% over the past week. It has a Momentum Score of A. 

Performance Food Group Company PFGC, through its subsidiaries, markets and distributes food and food-related products in the United States. The stock has surged almost 50% in the past year and has a Momentum Score of B. Shares of the company have lost 1.3% over the past week.

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.

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Heico Corporation (HEI) : Free Stock Analysis Report
 
Performance Food Group Company (PFGC) : Free Stock Analysis Report
 
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
 
Microchip Technology Incorporated (MCHP) : Free Stock Analysis Report
 
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