In this article, we discuss the 15 best momentum stocks to invest in. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Momentum Stocks To Invest In.
The influx of retail investors on the market in the past few months has led to an increase in stock volatility. However, smart investors have capitalized on this change by using this volatility to identify short-term upsides, buying rallies to sell at peak values. This investing strategy was made popular by Narasimhan Jegadeesh and Sheridan Titman in a research paper published in the early 1990s. The study found that investors who bought stocks that had performed well in the past and sold those that performed poorly generated significant positive returns over a year.
The academic weight behind momentum investing was given further credence by Wesley Gray and Jack Vogel, who revealed in a book titled Quantitative Momentum that a model they had come up with which measured stock momentums had returned close to 16% annually from 1927-2014, outperforming the industry benchmark S&P 500 over the period which had an annualized return rate of under 10% in the same time period. Investors concerned about soaring market valuations these days should take refuge in these numbers.
Some of the best momentum stocks to buy right now include Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF), among others discussed in detail below. However, those who want to jump on the momentum bandwagon should also consider the dotcom and finance bubbles of the previous decades that burst unexpectedly. As with any other investing strategy, momentum investing also carries certain risks. The world of big finance is no stranger to these risks.
ADVERTIsem*nT
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Our Methodology
With this context in mind, here is our list of the 15 best momentum stocks to invest in. These were ranked according to the percentage gain in share price over the past thirty days. In addition, special importance was assigned to the analyst ratings for each stock, with only those that have positive analyst sentiment making the cut. Finally, the data of 866 hedge funds tracked by Insider Monkey was used to gauge hedge fund sentiment around each company.
15. Tesla, Inc. (NASDAQ: TSLA)
Number of Hedge Fund Holders: 62
Percentage Gain in Last Month: 5.74%
Tesla, Inc. (NASDAQ: TSLA) is placed fifteenth on our list of 15 best momentum stocks to invest in. The company makes and sells electric vehicles. It also has stakes in the clean energy business. It is based in California. On August 13, Elon Musk, the chief of the firm, said that the company would begin producing cars at the Gigafactory setup in Berlin if it obtained regulatory permission to do so in time. Earlier the same day, CATL, the battery supplier of the company, revealed it was planning to raise $9 billion through a private placement to expand production.
On August 9, investment advisory Jefferies upgraded Tesla, Inc. (NASDAQ: TSLA) stock to Buy from Hold and raised the price target to $850 from $700, noting the higher global battery electric demand in the coming months as a growth catalyst for the firm.
At the end of the first quarter of 2021, 62 hedge funds in the database of Insider Monkey held stakes worth $10 billion in Tesla, Inc. (NASDAQ: TSLA), down from 68 in the preceding quarter worth $12 billion.
Just like Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF), Tesla, Inc. (NASDAQ: TSLA) is one of the best momentum stocks to invest in.
Here is what Baron Partners Fund has to say about Tesla, Inc. (NASDAQ: TSLA) in its Q1 2021 investor letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
14. Ball Corporation (NYSE: BLL)
Number of Hedge Fund Holders: 38
Percentage Gain in Last Month: 6.33%
Ball Corporation (NYSE: BLL) is ranked fourteenth on our list of 15 best momentum stocks to invest in. The company operates from Colorado and markets aluminum packaging products. In earnings results for the second quarter, posted on August 5, the company reported earnings per share of $0.86, beating market estimates by $0.03. The revenue over the period was $3.4 billion, up more than 23% compared to the revenue over the same period last year and beating predictions by $230 million.
On June 22, investment advisory Atlantic Equities upgraded Ball Corporation (NYSE: BLL) stock to Overweight from Neutral with a price target of $101. Colin Isaac, an analyst at the firm, issued the ratings update.
At the end of the first quarter of 2021, 38 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Ball Corporation (NYSE: BLL), down from 44 in the preceding quarter worth $944 million.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Ball Corporation (NYSE: BLL) was one of them. Here is what the fund said:
“Aluminum beverage and food container manufacturer Ball Corp, meanwhile, delivered fourth-quarter operating income slightly lower than consensus, though this was mainly attributable to higher startup costs for large new facilities coming online in North America. These investments and additional capacity projects will contribute to strong volume growth globally, however. Aluminum cans are infinitely recyclable and offer the best replacement product for single-use plastic beverage containers, in our view. They are more likely to be recycled than single-use plastic and are more energy efficient in production as well.”
13. The Allstate Corporation (NYSE: ALL)
Number of Hedge Fund Holders: 41
Percentage Gain in Last Month: 6.78%
The Allstate Corporation (NYSE: ALL) is an Illinois-based firm that markets insurance products. It is placed thirteenth on our list of 15 best momentum stocks to invest in. The company posted earnings for the second quarter on August 4, reporting earnings per share of $3.79, beating market predictions by $0.63. The revenue over the period was $12.6 billion, up close to 13% compared to the revenue over the same period last year and beating market estimates by more than $2 billion.
On July 9, investment advisory UBS kept a Neutral rating on The Allstate Corporation (NYSE: ALL) stock and raised the price target to $139 from $118, highlighting the macro environment and favorable pricing for the company as growth catalysts.
At the end of the first quarter of 2021, 41 hedge funds in the database of Insider Monkey held stakes worth $893 million in The Allstate Corporation (NYSE: ALL), up from 38 the preceding quarter worth $838 million.
In addition to Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF), The Allstate Corporation (NYSE: ALL) is one of the best momentum stocks to invest in.
In its Q2 2020 investor letter, Generation PMCA, an asset management firm, highlighted a few stocks and The Allstate Corporation (NYSE: ALL) was one of them. Here is what the fund said:
“Allstate, the second largest personal auto and home insurance writer in the U.S., should see earnings expand this year, during a challenging period when most companies aren’t expected to deliver year-over-year earnings growth. Higher mortality rates from coronavirus are being offset by lower mortality outside of virus-related deaths and expense control. In auto, the benefits of lower miles driven due to the pandemic offset auto rebates. Historically, Allstate’s scale and conservative underwriting have translated to superior profitability metrics. The company is on pace to achieve a mid-teen return on equity for ’21, well above peers. However, with shares currently at 1.3x book value, Allstate trades at a discount to competitors. We believe skepticism around recent acquisitions to diversify away from life and auto insurance (e.g., identify theft and warranties) is the reason for its discounted valuation. We expect the company to continue to cast its net further afield given the long-term threat of autonomous vehicles to its automobile franchise. We are comfortable with the strategy, especially since these acquisitions are immaterial. Meanwhile, the company should continue to post peer-beating results. Our FMV estimate is $120.”
12. General Electric Company (NYSE: GE)
Number of Hedge Fund Holders: 68
Percentage Gain in Last Month: 7.60%
General Electric Company (NYSE: GE) is a Boston-based high tech industrial company. It is ranked twelfth on our list of 15 best momentum stocks to invest in. On August 9, the healthcare unit of the firm revealed that it had entered into an agreement with Amazon Web Services to provide hospitals and healthcare providers with artificial intelligence and cloud-based imaging solutions and other integrated data. The company also said it would offer the Edison Health Services platform on the Amazon platform as part of the deal.
On May 19, investment advisory Barclays kept an Overweight rating on General Electric Company (NYSE: GE) stock and raised the price target to $16 from $15, noting several growth catalysts for the firm in the coming year.
At the end of the fourth quarter of 2020, 68 hedge funds in the database of Insider Monkey held stakes worth $6.1 billion in General Electric Company (NYSE: GE), down from 69 in the previous quarter worth $5.6 billion.
In its Q1 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and General Electric Company (NYSE: GE) was one of them. Here is what the fund said:
“General Electric is outperforming our expectations for 2021 as the economic recovery is occurring faster than expected. We are particularly pleased with its free cash flow generation. We are happy to own it in our portfolio.”
11. JPMorgan Chase & Co. (NYSE: JPM)
Number of Hedge Fund Holders: 111
Percentage Gain in Last Month: 7.83%
JPMorgan Chase & Co. (NYSE: JPM) is placed eleventh on our list of 15 best momentum stocks to invest in. The company is headquartered in New York and provides a variety of different financial services. On August 11, a day before it was revealed that exchange-traded funds had topped $9 trillion in assets, the firm announced plans to convert four active mutual funds into exchange traded funds. The four funds that are being converted hold $10 billion in assets under management.
On July 14, investment advisory Credit Suisse kept an Outperform rating on JPMorgan Chase & Co. (NYSE: JPM) stock and raised the price target to $177 from $170, noting the upside was driven by broad based revenue upside.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE: JPM) with 6.6 million shares worth more than $1 billion.
Alongside Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF), JPMorgan Chase & Co. (NYSE: JPM) is one of the best momentum stocks to invest in.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE: JPM) was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
10. eBay Inc. (NASDAQ: EBAY)
Number of Hedge Fund Holders: 51
Percentage Gain in Last Month: 10.16%
eBay Inc. (NASDAQ: EBAY) is ranked tenth on our list of 15 best momentum stocks to invest in. The company is run from California and operates an online marketplace that connects buyers with sellers. In earnings results for the second quarter, posted on August 11, the company reported earnings per share of $0.99, beating market estimates by $0.04. The revenue over the period was more than $2.6 billion, up over 14% compared to the revenue over the same period last year. The firm has a market cap of $48 billion.
On August 12, investment advisory Baird reiterated an Outperform rating on eBay Inc. (NASDAQ: EBAY) stock and raised the price target to $70 from $65, noting that buyer churn may be an overhang for the firm in the near term.
Out of the hedge funds being tracked by Insider Monkey, Boston-based investment firm Baupost Group is a leading shareholder in eBay Inc. (NASDAQ: EBAY) with 18.3 million shares worth more than $1.1 billion.
In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ: EBAY) was one of them. Here is what the fund said:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
9. Kansas City Southern (NYSE: KSU)
Number of Hedge Fund Holders: 49
Percentage Gain in Last Month: 10.86%
Kansas City Southern (NYSE: KSU) is a Missouri-based transportation holding company. It is placed ninth on our list of 15 best momentum stocks to invest in. The firm is primarily involved in the rail transportation business. It has a market cap of $26 billion and posted more than $2.6 billion in revenue last year. The company is presently the subject of a merger deal with either Canadian Pacific Railway or Canadian National Railway. However, as per reports, the firm is said to tilt in favor of a superior offer from the latter.
On August 10, Kansas City Southern (NYSE: KSU) declared a quarterly dividend of $0.54 per share, in line with previous. The forward yield was 0.75%. The dividend is payable to shareholders by the first week of October.
At the end of the first quarter of 2021, 49 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in Kansas City Southern (NYSE: KSU), the same as in the preceding quarter worth $1 billion.
Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF) are some of the best momentum stocks to invest in, in addition to Kansas City Southern (NYSE: KSU).
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Kansas City Southern (NYSE: KSU) was one of them. Here is what the fund said:
“Canadian Pacific Railway (CP) agreed to acquire Kansas City Southern (KSU) in the largest rail deal in over a decade. The merger will create the first rail network connecting Canada, the US, and Mexico, and it should benefit from the passage of the USMCA Trade Agreement. We initiated a position in KSU in Q4 as we expected it to benefit from growing North American trade and viewed it as a consolidation candidate.”
8. Ulta Beauty, Inc. (NASDAQ: ULTA)
Number of Hedge Fund Holders: 46
Percentage Gain in Last Month: 14.07%
Ulta Beauty, Inc. (NASDAQ: ULTA) is an Illinois-based retailer of beauty products. It is ranked eighth on our list of 15 best momentum stocks to invest in. The company runs more than 1,200 retail stores in 50 states across the country. In earnings results for the first quarter, posted on May 27, the firm reported earnings per share of $4.07, beating market predictions by $2.11. The revenue over the period was $1.9 billion, up more than 65% compared to the revenue over the same period last year and beating estimates by $300 million.
On August 16, investment advisory Oppenheimer maintained an Outperform rating on Ulta Beauty, Inc. (NASDAQ: ULTA) stock and raised the price target to $415 from $385, backing the firm to deliver as it prepared to post earnings for the quarter.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Ulta Beauty, Inc. (NASDAQ: ULTA) with 2.3 million shares worth more than $730 million.
7. Freeport-McMoRan Inc. (NYSE: FCX)
Number of Hedge Fund Holders: 68
Percentage Gain in Last Month: 14.12%
Freeport-McMoRan Inc. (NYSE: FCX) is placed seventh on our list of 15 best momentum stocks to invest in. The company is based in Arizona and has interests in the mining business. The company recently beat market expectations on earning per share for the second quarter. It has a market cap of over $59 billion and posted more than $14 billion in revenue last year. The stock has been soaring since the US Senate passed the infrastructure bill of President Biden. The firm explores for copper, gold, oil, and gas, among other metals and resources.
On May 26, investment advisory Deutsche Bank maintained a Buy rating on Freeport-McMoRan Inc. (NYSE: FCX) stock but lowered the price target to $47 from $50, noting that capex would increase as the company invested in growth.
At the end of the first quarter of 2021, 68 hedge funds in the database of Insider Monkey held stakes worth $3.2 billion in Freeport-McMoRan Inc. (NYSE: FCX), down from 71 in the preceding quarter worth $2.6 billion.
Paycom Software, Inc. (NYSE: PAYC), Pfizer Inc. (NYSE: PFE), and Capital One Financial Corporation (NYSE: COF) are some of the best momentum stocks to invest in, alongside Freeport-McMoRan Inc. (NYSE: FCX).
6. Tyson Foods, Inc. (NYSE: TSN)
Number of Hedge Fund Holders: 28
Percentage Gain in Last Month: 14.27%
Tyson Foods, Inc. (NYSE: TSN) is ranked sixth on our list of 15 best momentum stocks to invest in. The company makes and sells meat and is based in Arizona. It sells beef, pork, chicken, and prepared foods. In earnings results for the third fiscal quarter, posted on August 9, the company reported earnings per share of $2.70, beating market estimates by $1.03. The revenue over the period was $12.4 billion, up over 24% compared to the revenue over the same period last year and beating estimates by $960 million.
On August 10, investment advisory BMO Capital maintained an Outperform rating on Tyson Foods, Inc. (NYSE: TSN) stock and raised the price target to $95 from $84, noting that the strong fundamentals of the firm would converge with operational improvements.
At the end of the first quarter of 2021, 28 hedge funds in the database of Insider Monkey held stakes worth $761 million in Tyson Foods, Inc. (NYSE: TSN), down from 38 in the preceding quarter worth $867 million.
Click to continue reading and see 5 Best Momentum Stocks To Invest In.
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Disclose. None. 15 Best Momentum Stocks To Invest In is originally published on Insider Monkey.
As an enthusiast and expert in the field of momentum investing, let me provide you with an in-depth analysis of the concepts and information presented in the article.
Introduction to Momentum Investing: The article discusses the concept of momentum investing, a strategy that gained popularity through the research of Narasimhan Jegadeesh and Sheridan Titman in the early 1990s. Their study found that buying stocks that performed well in the past and selling those that performed poorly yielded significant positive returns over a year. This strategy capitalizes on short-term market fluctuations, and its academic credibility was further reinforced by Wesley Gray and Jack Vogel's findings in their book "Quantitative Momentum."
Risks in Momentum Investing: The article wisely cautions investors about the risks associated with momentum investing. It highlights historical bubbles, such as the dotcom and finance bubbles, emphasizing the importance of being mindful of unexpected market downturns. This is a crucial reminder that, like any investment strategy, momentum investing carries inherent risks.
Hedge Fund Sentiment: The article introduces the relevance of hedge fund sentiment in evaluating investment decisions. It points out that the entire hedge fund industry has experienced challenges in the past decade, but certain hedge fund holdings have outperformed market indices significantly. This highlights the importance of monitoring hedge fund sentiment as an indicator for potential investment opportunities.
Methodology for Selecting Momentum Stocks: The article outlines the methodology used to select the 15 best momentum stocks. Stocks are ranked based on the percentage gain in share price over the past thirty days. Special importance is given to positive analyst sentiment, and data from 866 hedge funds tracked by Insider Monkey is used to gauge hedge fund sentiment around each company.
Top Momentum Stocks: The article then delves into detailed information about specific momentum stocks, including their recent performance, analyst ratings, and hedge fund holdings. Here are insights into a few of the mentioned stocks:
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Tesla, Inc. (NASDAQ: TSLA): Electric vehicle and clean energy company with positive analyst sentiment and 62 hedge fund holders.
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Ball Corporation (NYSE: BLL): Aluminum packaging products company that beat market estimates in Q2 and has 38 hedge fund holders.
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The Allstate Corporation (NYSE: ALL): Insurance company with strong Q2 earnings, 41 hedge fund holders, and a positive outlook.
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General Electric Company (NYSE: GE): High-tech industrial company exceeding expectations with 68 hedge fund holders.
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JPMorgan Chase & Co. (NYSE: JPM): Financial services company with 111 hedge fund holders, showcasing strong momentum.
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eBay Inc. (NASDAQ: EBAY): Online marketplace with a positive earnings report for Q2 and 51 hedge fund holders.
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Kansas City Southern (NYSE: KSU): Transportation holding company involved in a merger deal, with 49 hedge fund holders.
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Ulta Beauty, Inc. (NASDAQ: ULTA): Beauty products retailer with impressive Q1 earnings, 46 hedge fund holders, and a positive outlook.
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Freeport-McMoRan Inc. (NYSE: FCX): Mining company experiencing a surge post the US Senate passing the infrastructure bill, with 68 hedge fund holders.
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Tyson Foods, Inc. (NYSE: TSN): Meat producer with strong Q3 earnings, 28 hedge fund holders, and positive analyst sentiment.
Conclusion: In conclusion, momentum investing, backed by academic research and historical data, offers a strategy to capitalize on short-term market movements. The article provides a comprehensive analysis of specific momentum stocks, considering recent performance, analyst ratings, and hedge fund sentiment. However, it also underscores the importance of being mindful of the risks associated with such strategies and the broader market dynamics.
