Understanding Momentum Stocks and How They Can Enhance Your Investment Strategy

Investing in the stock market can be a compelling avenue to grow wealth, and this holds true for individuals across various age groups and levels of investment expertise. A common objective among investors is to invest with confidence and to leverage opportunities effectively. An important tool in achieving these goals is understanding how to identify strong stocks, particularly those with momentum characteristics, which can be a valuable addition to an investment portfolio.

The Role of Zacks Style Scores in Stock Selection

One useful method for investors to discover robust stock options is through a system known as Zacks Style Scores. This is a scoring framework designed to evaluate stocks through three widely recognized investment perspectives: value, growth, and momentum. These scores are shaped to compliment the Zacks Rank and aid investors in finding stocks that could outshine the market in the subsequent 30-day period.

Stocks are assessed and assigned scores ranging from A to F for each of the investing styles - value, growth, and momentum - where an A-rated stock is perceived to have a better likelihood of outperforming the market. This scoring system is divided into four key categories:

Value Score emphasizes identifying stocks priced below their actual worth, which is vital for value investors. It includes metrics such as P/E and PEG ratios to pinpoint undervalued stocks.

Growth Score focuses on the financial robustness and future prospects of a company. Growth investors will find this score useful as it encompasses earnings, sales, and cash flow projections.

Momentum Score targets trends in the stock price or earnings estimations. It is particularly handy for momentum investors who aim to capitalize on stock price movements.

VGM Score combines the three aforementioned scores to give an overall rating, highlighting stocks with the most attractive collective attributes.

Combining Zacks Style Scores with the Zacks Rank

To effectively employ the Zacks Style Scores, one should integrate them with the Zacks Rank, a stock-rating model that uses earnings estimate revisions to help pinpoint successful investments. Stocks with a Zacks Rank of #1 (Strong Buy) have historically shown impressive returns, significantly outperforming the S&P 500.

However, the volume of highly ranked stocks can be overwhelming, thus, incorporating Style Scores can refine choices to those with the greatest potential. It is advisable to prioritize stocks that boast a Rank of #1 or #2, along with Style Scores of A or B, as these are expected to have a higher chance of success.

A word of caution: stocks with a #4 (Sell) or #5 (Strong Sell) rating should generally be avoided, even if they have high Style Scores, due to their declining earnings forecast.

Special Focus: Oshkosh Corporation

Oshkosh Corporation, a diverse manufacturer of vehicles and seller of specialty vehicles and equipment, exemplifies a stock worth considering. It is currently rated #2 (Buy) on the Zacks Rank and has a VGM Score of A.

Momentum-oriented investors should take note of Oshkosh for its solid Momentum Style Score of B, with shares increasing by almost 10% in the past month. The last two months have seen a positive shift in earnings estimates by analysts, with an average earnings surprise of over 40%.

Oshkosh Corporation's strong combination of a favorable Zacks Rank and high Style Scores makes it a noteworthy contender for investors’ shortlists.

Investing, Momentum, Stocks