Buy 3 Momentum Anomaly Stocks as Markets Wrap Up a Record First Half

Over the past few days, the broader U.S. equity markets scaled record-high territories as concerns related to AI abated and the Iran-U.S. war appeared to be nearing a resolution. Riding on solid performances by blue-chip firms, the markets recorded one of the best first-half performances in recent memory. With the United States and Iran agreeing to hit the pause button on war skirmishes and allow the free passage of commercial vessels through the Strait of Hormuz, the rally is likely to have a longer run.

The spotlight is now on the Federal Reserve Chairman Kevin Warsh as investors look for cues to the monetary policy and gauge an idea of the future stock market direction. Amid the vagaries of the market, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks, like Sterling Infrastructure, Inc. STRL, Seagate Technology Holdings plc STX and Semtech Corporation SMTC when value or growth investing fails to generate the desired profits.

This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.

Momentum strategies have been known to be alpha-generative over a long period and across market stages. Therefore, this strategy is quite tricky to implement, as detecting these trends is not easy. Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from long-term price momentum and a short-term pullback in price.

Screening Parameters for Momentum Anomaly Stocks

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: Stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance irrespective of the market conditions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process, as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. 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 stocks must all be trading at a minimum of $5.

Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.

Average 20-Day Volume Greater Than 100,000: A substantial trading volume ensures that these stocks are easily tradable.

Here are three of the seven stocks that made it through this screen:

Headquartered in The Woodlands, TX, Sterling is a diversified U.S. infrastructure services company that develops and services critical infrastructure while focusing on large and complex projects. It operates across the Southern, Northeastern, Mid-Atlantic, Rocky Mountain regions and Pacific Islands.

The stock has soared 239.5% over the past year but lost 10.5% over the past week. Sterling has a Momentum Score of A.

Headquartered in Dublin, Ireland, Seagate is a leading provider of data storage technology and infrastructure solutions. The company’s primary product offering is hard disk drives, which are commonly referred to as disk drives, hard drives or HDDs. These are used as the primary medium for storing digitally encoded data on rapidly rotating disks with magnetic surfaces.

The stock has surged 502.3% over the past year but declined 7.9% over the past week. Seagate has a Momentum Score of A.

Headquartered in Flynn Road, Camarillo, CA, Semtech designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications. The company's devices are used in a variety of applications, including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to other electronic component manufacturers.

The stock has surged 234.5% in the past year but declined 7.2% in the past week. Semtech has a Momentum Score of B.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."

Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report