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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.
Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at CNH Industrial (CNHI), a company that currently holds a Momentum Style Score of A. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
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. CNH Industrial 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?
In order to see if CNHI is a promising momentum pick, let's examine some Momentum Style elements to see if this truck, tractor and bus maker holds up.
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's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For CNHI, shares are up 5.45% over the past week while the Zacks Automotive - Foreign industry is up 1.59% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 19.81% compares favorably with the industry's 1.02% performance as well.
While any stock can see its price increase, it takes a real winner to consistently beat the market. That is why looking at longer term price metrics -- such as performance over the past three months or year -- can be useful as well. Shares of CNH Industrial have increased 59.04% over the past quarter, and have gained 25.7% in the last year. In comparison, the S&P 500 has only moved 8.93% and 17.5%, respectively.
Investors should also take note of CNHI'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, CNHI is averaging 2,321,494 shares for the last 20 days.
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 CNHI.
Over the past two months, 1 earnings estimate moved higher compared to none lower for the full year. These revisions helped boost CNHI's consensus estimate, increasing from $0.11 to $0.13 in the past 60 days. Looking at the next fiscal year, 3 estimates have moved upwards while there have been no downward revisions in the same time period.
Given these factors, it shouldn't be surprising that CNHI 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 CNH Industrial on your short list.
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