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Solid Data Fuels Trade of Momentum ETFs & Stocks

Sweta Killa
Mutual Fund Report for PGOFX

While Trump’s protectionist trade policies have been weighing on the stock market, a slew of upbeat economic data has spread optimism. This is especially attributable to the robust job and manufacturing data for the month of May.

Inside The Numbers

After two months of lackluster gains, hiring in the United States rebounded with the addition of 223,000 jobs in May, which was much more than expected. The unemployment rate dropped from 3.9% to 3.8%, the lowest since 2000 while average hourly wages rose 8 cents, pushing the year-over-year increase to 2.7% (read: 4 Best Performing Sector ETFs of May).

Manufacturing activity expanded faster than expected, indicating that American manufacturing is enjoying a 21-month winning streak. The ISM manufacturing index jumped to 58.7 in May, up from 57.3 in April and 58.4 projected by Reuters while order backlogs grew the most in 14 years. Of the 18 manufacturing industries, 16 expanded, led by textile mills and producers of nonmetallic minerals.

Meanwhile, data from the Commerce Department shows that construction spending increased 1.8% in April - the biggest increase since January 2016 after a 1.7% decline in March.

Other Data

The rounds of other economic data have also boosted confidence in the economy. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased the most in five months, by 0.6% in April, while consumer confidence rebounded near an 18-year high in May. The Consumer Confidence Index, as indicated by the Conference Board, rose to 128.0 from 125.6 in April. The upbeat data underscores the economy's strong fundamentals and consumers’ enthusiasm to spend more.

Amid bullish sentiments, momentum investing would be a winning strategy for those seeking higher returns in a short spell. This is because the strategy looks to fetch profits from buying hot stocks that have shown an uptrend over the past few weeks or months (read: Top and Flop ETFs at Half-Way Q2).

Here we present five ETFs and stocks that could lead to outperformance in the current market environment. Further, these could even beat broader market returns in the coming months if these trends prevail.

ETF Picks

iShares Edge MSCI USA Momentum Factor ETF MTUM

This fund provides exposure to large and mid-cap stocks that exhibit a relatively higher price momentum by tracking the MSCI USA Momentum Index. It charges 15 bps in fees per year and is the popular choice with AUM of $9.1 billion.

PowerShares DWA Momentum Portfolio PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It has amassed $1.5 billion in its asset base and charges 63 bps in annual fees (read: Is "Sell in May" An Overstated Adage? Play 4 ETFs).

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $602 million, this product targets large-cap securities with a combination of core factors (high value, high quality, and low size characteristics), with a focus factor comprising high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and charges an annual fee of 20 bps. The fund has a Zacks ETF Rank #3 (Hold).

USAA MSCI USA Value Momentum Blend Index ETF ULVM

This fund tracks the MSCI USA Select Value Momentum Blend Index, which offers exposure to large and mid-cap companies that have higher exposure to value and momentum factors while also maintaining moderate turnover and lower realized volatility than traditional capitalization weighted indexes. It has accumulated $373.4 million in AUM and charges 0.20% in expense ratio.

PowerShares DWA SmallCap Momentum Portfolio DWAS

This ETF offers exposure to the small-cap segment of the broad U.S. stock market. It follows the popular Dorsey, Wright & Associates proprietary selection methodology that is designed to identify small-cap firms with positive relative strength characteristics in an attempt to follow companies with strong forward momentum. DWAS has AUM of $300.2 million and expense ratio of 0.60% (read: Here's Why Small Cap Growth ETF are Soaring).

Stock Picks

Ternium S.A. TX

This Luxembourg-based company is the leading producer of flat and long steel products of Latin America and consolidates the operations of the steel companies Hylsa in Mexico, Siderar in Argentina and Sidor in Venezuela. It saw solid earnings estimate revision of 47 cents in a month for this year, with an expected earnings growth of 35.92%. The stock has a Zacks Rank #1 (Strong Buy) and a Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hi-Crush Partners LP HCLP

This Texas-based company is engaged in the production of monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. It has seen positive earnings estimate revision of 9 cents for the fiscal year over the past 30 days with an expected earnings growth of 190.10%. The stock has a Zacks Rank #1 and a Momentum Score of A.

CVR Refining LP CVRR

This Texas-based company is engaged in the refining of petroleum, primarily in the United States. It saw positive earnings estimate revision of a nickel over the past 30 days for this year, with an expected earnings growth rate of 255%. The stock has a Zacks Rank #1 and a Momentum Score of A (read: Are Good Times Over for the Oil Patch? ETFs to Profit).

Delek US Holdings Inc. DK

This Tennessee-based company is a diversified energy business focused on petroleum refining, marketing and supply of refined products, and retail marketing of fuel and general merchandise. It saw solid earnings estimates revision of $1.02 for this year over the past month, with an expected earnings growth rate of 230.16%. The stock has a Zacks Rank #1 and a Momentum Score of A.

Micron Technology Inc. MU

This Idaho-based company is one of the leading worldwide providers of semiconductor memory solutions. It has seen solid earnings estimate revision of 54 cents for this year over the past 30 days and has an estimated earnings growth rate of 132.46%. The stock has a Zacks Rank #1 and a Momentum Score of A.

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