In this article, we present the 15 best momentum stocks to buy now. If you’re in a hurry click to skip ahead to the 5 Best Momentum Stocks to Buy Now.
Momentum investing is one of the most fundamental quantitative investment strategies for investors seeking profit. Basically, it is the strategy of buying high and selling even high. The term is similar to Newton’s first law of motion which states that when an object is in motion it tends to stay in motion unless a force is applied to it. In relation, a market in motion tends to stay in motion. Basically, trends tend to continue.
The strategy dates back to 2004, when Chicago-based fund manager, Richard Driehaus turned the practice into a strategy. Although he was not the first to use the strategy, he is often called the father of momentum investing. He started buying stocks that already had good price moves and holding on to it as long as the upward price movement continues. He emphasized his discipline in selling the losers as soon as he sees a downward trend and re-investing the money in others upward trend stocks.
Investing in the time of an economic recession can be one of the hardest decisions for an investor given the market volatility. In the contrary, momentum investing goes against the market by taking advantage of positions in rising stocks and selling them the moment they show signs of going down. A momentum investor is more attracted to stocks that have rising prices as an upward trend may seem most likely in a certain period of time. The idea is based on the possibility of a stock that establishes a trend will continue in that direction rather than go against it.
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If an investor has the ability to identify sectors quickly and accurately, investing in momentum stocks can offer a great chance to gain a winning trade and take profits higher than regular trading opportunities over a short period of time. For instance, in a study by Narasimhan Jegadeesh and Sheridan Titman covering the US stock returns between 1965-1989, momentum was a significant factor that generated an outperformance of as much as 12.01% per year on average. In a separate study by Grundy and Martin in 2001, where they used NYSE and AMEX listed stocks, it was concluded that momentum profits were stable even after adjustment for dynamic risk exposure.
In order to identify the 15 best momentum stocks to buy now, we started with the 126 holdings from the iShares MSCI USA Momentum Factor ETF as of February 8, 2021, and we were able to narrow down our list to 15 stocks by using the hedge fund sentiment data.
In order to create the list of the best momentum stocks to buy now, we used our in-house hedge fund sentiment data. Our research has shown that by using the hedge fund sentiment data, we can identify a small group of stocks that can outperform the S&P 500 index on average by double digits annually. For instance, the portfolio for stock picks for our monthly newsletter has beaten the market by over 111 percentage points since March 2017 (see details here) Some of the portfolio choices for our monthly newsletter were also publicly shared on our website. In October, we posted this real estate stock since then it’s been up more than 60 percent.
Based on our hedge fund sentiment data, we present to you the 15 best momentum stocks to buy now among 800+ hedge funds tracked by Insider Monkey:
15. Tesla (NASDAQ:TSLA)
No of HFs: 67
Total Value of HF Holdings: $8.17 Billion
TSLA is the 15th best momentum stock to buy now. At the end of September, a total of 67 hedge funds tracked by Insider Monkey were long this stock. An insider purchased 1,250 shares at around $767 in February 2020. The stock is up 10% since then. Baron Opportunity Fund mentioned TSLA in its 3Q 2020 investor letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, and energy storage solutions. The company reported robust second quarter results, solidly ahead of market expectations, despite the impact of the COVID-19 pandemic and associated macro-economic challenges. Indeed, in the second quarter, Tesla delivered almost 91,000 total vehicles – with strong unit level economics of 25.4% GAAP automotive gross profit margins – and another quarter of GAAP profitability and solid free cash flow (above $400 million). Moreover, Tesla recently announced a record of nearly 140,000 total vehicle deliveries for the third quarter. Despite global COVID-19 disruptions, our long-term expectations remain high due to Tesla’s differentiated products and healthy unit economics. Tesla has announced capacity expansions in Shanghai, China; Berlin, Germany; and Austin, Texas to support its short-term path to 1 million vehicles and its long-term goal of 20 million. Just a couple of weeks ago, Tesla held its Battery Day event, and presented a grand vision around its battery innovation and expanding its competitive advantages, including massively increasing internal battery production capacity (100 gigawatt-hours by 2022 and 3,000 by 2030), improving battery range (about 50%), and significantly lowering battery costs (cost per kilowatt-hour to decline by over 50%). We remain confident that Tesla will leverage its brand, technology leadership, and the electric vehicle secular trend to achieve sustainable long-term growth.”
14. Nike, Inc. (NYSE:NKE)
No of HFs: 75
Total Value of HF Holdings: $4.21 Billion
One of the biggest hedge fund savings stakes in the company is Ken Fisher’s Fisher Asset Management which had $840 million invested in the stock at the end of September. An insider recently purchased 1,000 shares at around $78 in April 2020. The stock is up 80% since then. L1 Capital International Fund mentioned NKE in its Q3 2020 investor letter:
“We reduced our investment in Nike. Nike is performing extremely strongly in a challenging operating environment, gaining share and exceeding our expectations. However, the market has recognised Nike’s strong performance and after a substantial increase in the share price we consider the risk adjusted return potential only warrants a minimum position size.”
13. Danaher Corp (NYSE:DHR)
No of HFs: 75
Total Value of HF Holdings: $4.70 Billion
One of the biggest hedge fund savings stakes in the company is Dan Loeb’s Third Point which had $645 million invested in the stock at the end of September. An insider recently purchased 26,784 shares at around $226 in November 2020. The stock is up 4% since then. Del Principe O’Brien Financial Advisors mentioned DHR in its Q3 2020 investor letter:
“Danaher, which designs, manufactures, and markets life science, diagnostics, dental, environmental, and applied solutions, is a prime example of how to use the business strategy of “bolt-on” acquisitions. Led by capital allocation experts the Rales brothers, Danaher will purchase a company in a fragmented industry, create a strategic platform for providing a unique service, and then spin off the company when it can create even more value as an independent entity.
Since Danaher’s bolt-on acquisition of the biopharma business of General Electric’s Life Sciences division for $21.4 billion in March 2019, we have realized a gain of well over 100%. The move boosted Danaher’s stock from around $90 (our purchase price) to the $210s. A gain like this is one of the big upsides of investing in a serial acquirer.”
12. Thermo Fisher Scientific, Inc. (NYSE:TMO)
No of HFs: 80
Total Value of HF Holdings: $4.97 Billion
At the end of September, a total of 80 hedge funds tracked by Insider Monkey were long this stock. One of the biggest hedge fund savings stakes in the company is Ken Fisher’s Fisher Asset Management which had $713 million invested in the stock at the end of September. They are one of the leading suppliers for analytical instruments, reagents and consumables for diagnostic and research purposes. During the fourth quarter of 2020, the company reported a $7.09 per share, beating consensus forecast of $6.56 per share.
11. NVIDIA Corp (NASDAQ:NVDA)
No of HFs: 82
Total Value of HF Holdings: $7.67 Billion
One of the biggest hedge fund savings stakes in the company is Raiv Jain’s GQG Partners which had $2.54 billion invested in the stock at the end of September. An insider recently purchased 100 shares at around $537 in December 2020. The stock is up 6% since then. Vulcan Value Partners mentioned NVDA in its 3Q 2020 investor letter:
“NVIDIA Corp. is the dominant supplier of Graphics Processing Units (GPUs) worldwide. During the first quarter of 2019, its stock price declined considerably due to the combination of three factors. A capital spending hiatus by cloud providers, the collapse in demand for cryptocurrency mining, along with the end of the product cycle in its most recent gaming chip caused NVIDIA to miss its quarterly earnings estimates. As a result, we were given the opportunity to purchase NVIDIA with a significant margin of safety in March of 2019. NVIDIA’s value grew substantially while we owned it, and we continued to follow our discipline by trimming and adding to the company as its price fluctuated. We exited NVIDIA when its stock price rose close to our estimate of fair value. The combination of its value growth and the closing of the price to value gap provided substantial returns over our investment period.”
10. Qualcomm, Inc. (NASDAQ:QCOM)
No of HFs: 87
Total Value of HF Holdings: $2.58 Billion
The 10th best momentum stock to buy now is QCOM. One of the biggest hedge fund savings stakes in the company is Ken Griffin’s Citadel Investment Group which had $445 million invested in the stock at the end of September. An insider recently purchased 500 shares at around $84 in December 2019. The stock is up 73% since then. Del Principe O’Brien Financial Advisors mentioned the stock in its Q2 2019 investor letter:
“When Qualcomm was trading in the low $50s, we bought every share we could. Qualcomm stock rose to around $70 when Broadcom was set to acquire the company, but ultimately the deal did not go through. In April of this year, Qualcomm ended a lengthy and complicated legal battle with Apple over the licensing of Qualcomm’s chip technology in Apple’s mobile devices, including its iPhones. The settlement included a payout from Apple to Qualcomm rumored to be around $6 billion, as well as a six-year licensing agreement and a supply agreement guaranteeing that the chipmaker continue to provide its products to the largest company in the world. With this settlement and the expected increase in product shipments, Qualcomm anticipates an incremental earnings per share of $2. As Qualcomm shareholders, we were able to realize a gain of 54% over a short period of time.”
9. Netflix, Inc. (NASDAQ:NFLX)
No of HFs: 104
Total Value of HF Holdings: $12.8 Billion
At the end of September, a total of 104 hedge funds tracked by Insider Monkey were long this stock. An insider recently purchased 300 shares at $310 in August 2019. The stock is up 80% since then. Blue Hawk Investment Group mentioned NFLX in ts 4Q 2020 investor letter:
“Netflix round out our top five. This stock we have held since inception of the fund, first buying Netflix at $142 originally in early 2017. A 4x return respectively over the four-year period.”
8. Adobe, Inc. (NASDAQ:ADBE)
No of HFs: 106
Total Value of HF Holdings: $10.5 Billion
The top hedge fund holder of this stock is Ken Fisher’s Fisher Asset Management which had $2.71 billion invested in the stock at the end of September. Nelson Roberts Investment Advisors mentioned the stock in its 3Q 2020 investor letter:
“We purchased Adobe (NASDAQ:ADBE), the leading provider of content creation software. Adobe is a software company with a recurring revenue stream, which should insulate it from some of the negative effects of the COVID-19 outbreak.”
7. Salesforce.com, Inc. (NYSE:CRM)
No of HFs: 106
Total Value of HF Holdings: $11.0 Billion
At the end of September, a total of 106 hedge funds tracked by Insider Monkey were long this stock. An insider recently purchased 400 shares at around $152 in March 2020. The stock is up 55% since then. Alger Spectra Fund mentioned CRM in its Q3 2020 investor letter:
“Salesforce.com is a leading software-as-a-service company with turnkey salesforce productivity and customer relationship management applications as well as a cloud-based development environment. Increased spending on technology by corporations digitizing their business models supported the performance of salesforce.com shares. We believe the return on investment (ROI) from deploying salesforce.com technology is compelling because the company’s products make enterprises more productive and profitable while fostering growth. This attractive ROI has resulted in the company’s continuing high unit volume growth.”
6. Apple, Inc. (NASDAQ:AAPL)
No of HFs: 134
Total Value of HF Holdings: $127 Billion
A total of 134 hedge funds tracked by Insider Monkey were long this stock at the end of September. One of the biggest hedge fund savings stakes in the company is Warren Buffett’s Berkshire Hathaway which had $109 billion invested in the stock at the end of September. Alger Spectra Fund mentioned AAPL in its Q3 2020 investor letter:
Apple is a leading technology provider in telecommunications, computing and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives extremely tight engagement with consumers and enterprises. This tight engagement is facilitating significant growth in high-margin services like streaming music. apps. and Apple Pay. Apple’s continued development of high-margin services and earnings streams for wearable devices as well as the potential contribution of 5G phones to the company’s growth supported the performance of Apple shares.”
Click to continue reading and see the 5 Best Momentum Stocks to Buy Now.
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Disclosure: None. 15 Best Momentum Stocks To Buy Now is originally published at Insider Monkey.
As an enthusiast and expert in financial markets and momentum investing, let me delve into the concepts and information presented in the article about the 15 best momentum stocks to buy now.
1. Momentum Investing Overview:
- Definition: Momentum investing is a quantitative investment strategy that involves buying securities with recent strong performance and selling those with weak performance. It capitalizes on the idea that trends in the market tend to persist.
- Origin: Richard Driehaus is credited as a key figure in turning momentum investing into a strategy around 2004. He emphasized buying stocks with positive price movements and promptly selling losers.
- Market Behavior Analogy: The article draws a parallel with Newton's first law of motion, stating that a market in motion tends to stay in motion, reflecting the idea that trends are likely to continue.
2. Historical Evidence Supporting Momentum Investing:
- Research Studies: The article cites studies by Narasimhan Jegadeesh and Sheridan Titman, covering US stock returns between 1965-1989, showing momentum as a significant factor for outperformance.
- Stability of Momentum Profits: Another study by Grundy and Martin in 2001, based on NYSE and AMEX listed stocks, concludes that momentum profits remain stable even after adjusting for dynamic risk exposure.
3. Methodology for Identifying Momentum Stocks:
- Data Source: The article uses the iShares MSCI USA Momentum Factor ETF as a starting point, consisting of 126 holdings as of February 8, 2021.
- Refinement: The list is narrowed down to 15 stocks using hedge fund sentiment data to identify the best momentum stocks.
- Hedge Fund Sentiment Data: The article claims that using hedge fund sentiment data can help identify stocks that outperform the S&P 500 index, providing an example of a portfolio beating the market by over 111 percentage points since March 2017.
4. Top Momentum Stocks and Hedge Fund Sentiment:
- The article lists the top 15 momentum stocks, providing details on each, including the number of hedge funds (HFs) invested and the total value of hedge fund holdings.
- It mentions specific insider transactions and includes excerpts from hedge fund investor letters explaining their perspectives on the respective stocks.
- Notable stocks include Tesla (TSLA), Nike (NKE), Danaher Corp (DHR), Thermo Fisher Scientific (TMO), NVIDIA Corp (NVDA), Qualcomm (QCOM), Netflix (NFLX), Adobe Inc (ADBE), Salesforce.com (CRM), and Apple Inc (AAPL).
In conclusion, the article combines historical evidence, quantitative analysis, and hedge fund sentiment data to present a list of 15 momentum stocks believed to offer strong potential returns for investors. The inclusion of specific insights from hedge fund investor letters adds depth to the analysis and provides context for each recommended stock.
