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Hit the Waves When Surf's Up: 4 Momentum Stocks for Q4

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We are all surfers in search of that perfect wave but it keeps eluding us. One rides a wave on the hope that it is the best the ocean has to offer and that it will carry you all the way to shore.

Similarly, momentum investors try to find the perfect stock to ride on the highs. The momentum investment strategy assumes that stocks that have performed well in the past will hold onto that impetus and ensure a smooth ride into the future as well. It also believes that the low-performing stocks have a tendency to be true to their name. Basically, it means that trends exist and they persist.

As such, momentum stocks tend to be the high-performing ones that have delivered gains in the past and continue to hold promise.

It is true that finding a momentum stock is a much easy task in a raging bull market but rough tides often have more thrills in the offing. The challenge is to sail on the crest of one wave and jump onto the next before it crashes. Momentum investing can be profitable but timing is of utmost importance here.

However, nothing comes easily in life. Momentum investing generally involves more risk as it deals in high-return stocks. Some investors are also of the opinion that past performance does not guarantee future growth. Even Warren Buffet had once said, "The investor of today does not profit from yesterday's growth."

Is momentum investing risky? Yes. Should you avoid this strategy then? No. Momentum investment is not necessarily for everyone but cautious investments are likely to deliver desired results. Betting on stocks just based on their price movement would be foolhardy. But when the filter of fundamentals is added to this, the risk level is somewhat checked.

Finding the Right Wave

There is no perfect way to ride a wave. But if you master the art of surfing, even rough waters become smoother.

Here is where our new style score system comes into play. It takes into account many factors including volume change and performance relative to its peers and thus makes stock picking for momentum investors a much easier task. Back-tested results show that stocks with Style Scores of 'A' or 'B' when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.

Below is a list of stocks that not only carry a favorable Zacks Rank #1 or #2 but also boast a momentum score of 'A'. These stocks have beaten the S&P this year and are trading near their 52-week highs. The ones that remain near their highs are even more remarkable in markets like this and are noteworthy.

Moreover, these stocks have witnessed positive earnings estimate revisions for the full year over the past few weeks, suggesting that brokerage firms are bullish on these stocks as we move into the fourth and final quarter of the year.

Here we present four such stocks that are nice additions for your portfolio at this point:

Long Island City, New York based JetBlue Airways CorporationJBLU is a passenger carrier that that focuses on providing high-quality customer service. The low-fare, low-cost carrier operates primarily on point-to-point routes. Continuous route expansion, higher codesharing agreements and innovative service launches will likely continue to act as catalyst for the company.

Zacks Rank #1

Increase in share price (YTD): 63%

EPS Surprise (trailing 4 quarter average): 3%

Change in Full-Year Estimate Revision (over 60-days): 3.3%

Year-over-year earnings growth: 167.5% (vs industry average of 8.6%)

Alaska Air Group, Inc.ALK provides passengers and cargo air transportation services primarily in the United States. Recently, Seattle-based Alaska Air Group also grabbed headlines following a codeshare deal and frequent flier partnership to enhance connectivity between Europe and the U.S. The airlines sector continues to benefit from the drop in oil prices .

Zacks Rank #1

Increase in share price (YTD): 33%

EPS Surprise (trailing 4 quarter average): 2.6%

Change in Full-Year Estimate Revision (over 60-days): 2.3%

Year-over-year earnings growth: 51.4% (vs industry average of 8.6%)

Based in Cincinnati, OH Cintas CorporationCTAS provides specialized services to businesses of all types throughout North America. The company is witnessing strong growth across major segments, and is looking to build on this momentum. Cintas has reorganized its segments and increased the fiscal guidance following the acquisition of Zee Medical.

Zacks Rank #2

Increase in share price (YTD): 9%

EPS Surprise (trailing 4 quarter average): 5.6%

Change in Full-Year Estimate Revision (over 60-days): 1.8%

Year-over-year earnings growth: 16.4% (vs industry average of 13%)

Progressive Corp.PGR is one of the major auto insurers in the country. Based in Mayfield Village, OH, Progressive continues to benefit from higher premiums that drive its bottom line. Its efforts to become a one-stop insurance shopping destination raises further optimism.

Zacks Rank #2

Increase in share price (YTD): 14%

EPS Surprise (trailing 4 quarter average): 13.4%

Change in Full-Year Estimate Revision (over 60-days): 1%

Don't Throw Caution Away

Momentum is an important indicator in determining stock prices and trends. However, other indicators and market developments must also be taken into account before jumping into the ocean.

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 >>

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

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

CINTAS CORP (CTAS): Free Stock Analysis Report

PROGRESSIVE COR (PGR): Free Stock Analysis Report

ALASKA AIR GRP (ALK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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