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Here's Why Momentum Investors Will Love Devon Energy (DVN)

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·4 min read
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Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.

While many investors like to look for momentum in stocks, this can be very tough to define. There is a lot of debate surrounding which metrics are the best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.

Below, we take a look at Devon Energy (DVN), which currently has a Momentum Style Score of A. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.

It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Devon Energy currently has a Zacks Rank of #2 (Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.

You can see the current list of Zacks #1 Rank Stocks here >>>

Set to Beat the Market?

Let's discuss some of the components of the Momentum Style Score for DVN that show why this oil and gas exploration company shows promise as a solid momentum pick.

Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.

For DVN, shares are up 12.15% over the past week while the Zacks Oil and Gas - Exploration and Production - United States industry is up 4.8% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 10.64% compares favorably with the industry's 2.12% performance as well.

Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Over the past quarter, shares of Devon Energy have risen 20.5%, and are up 112.26% in the last year. On the other hand, the S&P 500 has only moved 4.81% and 47.77%, respectively.

Investors should also take note of DVN's average 20-day trading volume. Volume is a useful item in many ways, and 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, DVN is averaging 10,245,317 shares for the last 20 days.

Earnings Outlook

The Zacks Momentum Style Score also takes into account trends in estimate revisions, in addition to price changes. Please note that estimate revision trends remain at the core of Zacks Rank as well. A nice path here can help show promise, and we have recently been seeing that with DVN.

Over the past two months, 7 earnings estimates moved higher compared to 2 lower for the full year. These revisions helped boost DVN's consensus estimate, increasing from $1.71 to $2.14 in the past 60 days. Looking at the next fiscal year, 7 estimates have moved upwards while there have been 1 downward revision in the same time period.

Bottom Line

Given these factors, it shouldn't be surprising that DVN is a #2 (Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Devon Energy on your short list.


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