Momentum Investing: Riding the Wave of Market Trends
Momentum investing is a popular strategy that focuses on following a stock’s recent trend in either direction. This approach involves "buying high, but hoping to sell even higher," as the goal is to capitalize on trends in a stock’s price once it establishes a course. With momentum investing, investors seek to ride the wave of market trends, leveraging the power of recent price movements to inform their investment decisions.
The Challenges of Defining Momentum
Defining momentum can be a daunting task for many investors. While some metrics may seem straightforward, others can be misleading or irrelevant in predicting future performance. For instance, a stock’s short-term price activity can reflect both current interest and the balance between buyers and sellers, but it is essential to consider other factors as well.
The Zacks Momentum Style Score: A Solution
One tool that helps address this issue is the Zacks Momentum Style Score, part of the Zacks Style Scores. This metric combines various factors, including price change and earnings estimate revisions, to provide a comprehensive view of a stock’s momentum. By using the Zacks Momentum Style Score, investors can identify stocks with strong momentum more effectively.
Marcus (MCS): A Case Study
Let’s take a closer look at Marcus (MCS), which currently holds a Momentum Style Score of B. We will examine some of the key drivers behind this score, including price change and earnings estimate revisions. As we delve into these factors, it becomes clear why MCS is considered a solid momentum pick.
Price Change: A Key Component
One essential aspect of the Zacks Momentum Style Score is price change. This metric reflects both current interest in a stock and the balance between buyers and sellers. By comparing a security to its industry peers, investors can identify the best companies in a particular area. For MCS, shares are up 8.32% over the past week while the Zacks Leisure and Recreation Services industry is flat over the same time period.
Longer-Term Price Metrics: A More Comprehensive View
While any stock can see its price increase, it takes a real winner to consistently beat the market. To gain a more comprehensive understanding of a stock’s momentum, investors should consider longer-term price metrics, such as performance over the past three months or year. Shares of Marcus have increased 9.65% over the past quarter, and have gained 69.91% in the last year. In comparison, the S&P 500 has only moved 2.37% and 14.4%, respectively.
Average Trading Volume: A Key Indicator
Investors should also take note of a stock’s average trading volume, as it can be a useful indicator of market sentiment. The 20-day average establishes a good price-to-volume baseline; a rising stock with above-average volume is generally a bullish sign, whereas a declining stock on above-average volume is typically bearish. Right now, MCS is averaging 181,234 shares for the last 20 days.
Earnings Outlook: A Key Driver of Momentum
The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock’s price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with MCS. Over the past two months, 1 earnings estimate moved higher compared to none lower for the full year.
Bottom Line
Taking into account all of these elements, it should come as no surprise that MCS is a #2 (Buy) stock with a Momentum Score of B. If you’ve been searching for a fresh pick that’s set to rise in the near-term, make sure to keep Marcus on your short list.
Conclusion
Momentum investing can be a powerful strategy when done correctly. By leveraging tools like the Zacks Momentum Style Score and considering key drivers such as price change and earnings estimate revisions, investors can identify stocks with strong momentum more effectively. As demonstrated by the case study of Marcus (MCS), this approach can help investors capitalize on market trends and achieve their investment goals.
Want to Learn More?
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