The instability in the financial stock markets seems overdone for now, thanks to positive news flows from across the globe and bargain hunting. In particular, renewed hopes for additional stimulus from Europe and Japan led to a rally in the global markets, capping a 20% slide in the MSCI World Index from the recent peak seen last week.
The European Central Bank (ECB) reiterated its intention to ease policies further at the next policy meeting in March and the weak GDP data out of Japan for the final quarter of 2015 rasied expectations of additional stimulus to restore growth. Additionally, China’s central bank also stepped up its efforts to arrest the slowdown in the economy and any further devaluation of the currency yuan.
The Fed also cautioned that the ongoing global market instability might weigh on the slowly recovering U.S. economy and delay the next rate hikes, suggesting that policy easing will remain in place for longer than expected. Meanwhile, oil prices rebounded from a multi-year low and the global banks made an impressive comeback at the start of the week, giving a boost to the sectors that are lagging the most, namely energy and banking.
Given the positive developments, the U.S. stock markets are poised for gains in today’s session after returning from the Presidents Day holiday. This is evident from the rally of nearly 1.2% in the U.S. futures in the pre-open market trade at the time of writing. Amid these bullish sentiments, momentum investing should be a winning strategy for investors seeking higher returns in a short spell. This is because the strategy looks to capture profits by buying hot stocks that have been on an uptrend over the past few weeks or months.
How to Pick the Right Stocks?
Handpicking momentum stocks has now become a fairly simple task thanks to the Zacks Momentum Style Score which indicates the favorable time to enter a stock to take advantage of the momentum with the highest probability of success. Our research shows that stocks with a Momentum Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential with a stronger momentum effect.
Hence, we have used our Zacks stock screener to find out the best stocks in the momentum space. The parameters include a Momentum score of A, a Zacks Rank #1 or #2, and market cap above $2 billion. Further, we have narrowed down the list to locate stocks with below-industry P/E and P/B ratios.
Prospect Capital Corporation (PSEC - Snapshot Report)
This New York-based company is a leading provider of flexible private debt and equity capital to sponsor-owned and non-sponsor-owned middle-market companies in the United States and Canada.
Momentum Style Score: A
Zacks Rank: #2
Market Cap: $2.19 Billion
P/E: 5.73 versus industry average of 9.15
P/B: 0.61 versus industry average of 1.33
Xerox Corporation (XRX - Analyst Report)
This Connecticut-based company is the leading provider of business process and document management solutions worldwide.
Momentum Style Score: A
Zacks Rank: #2
Market Cap: $8.88 Billion
P/E: 8.22 versus industry average of 15.73
P/B: 0.96 versus industry average of 2.65
Endo International plc (ENDP - Analyst Report)
This Ireland-based company is a global specialty pharmaceutical company that develops, manufactures, markets, and distributes quality branded pharmaceutical and generic products as well as medical devices.
Momentum Style Score: A
Zacks Rank: #2
Market Cap: $11.13 Billion
P/E: 8.12 versus industry average of 15.08
P/B: 1.72 versus industry average of 2.41
Boardwalk Pipeline Partners LP (BWP - Snapshot Report)
This Texas-based company is a master limited partnership that provides transportation, storage, gathering and processing services for natural gas and natural gas liquids.
Momentum Style Score: A
Zacks Rank: #2
Market Cap: $2.71 Billion
P/E: 10.79 versus industry average of 11.62
P/B: 0.63 versus industry average of 0.75
Time Warner Inc. (TWX - Analyst Report)
This New York-based company is a leading media and entertainment company with businesses in television networks, films and TV entertainment.
Momentum Style Score: A
Zacks Rank: #2
Market Cap: $49.78 Billion
P/E: 11.63 versus industry average of 12.62
P/B: 2.11 versus industry average of 2.60
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