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Top 6 Momentum Stocks for February Despite Recent Turmoil

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Nalak Das
·7 min read
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Wall Street halted in the first month of this year after rallying in the last two months of the previous year. In January, the Dow and the S&P 500 lost 2% and 1.1%, respectively, while the Nasdaq Composite gained 1.7%. For the week ended Jan 29, the Dow, the S&P 500 and the Nasdaq Composite tumbled 3.2%, 3.3% and 3.5%, respectively, posting their worst weekly performance since October 2020.

However, a closer look at last week's trading pattern clearly revealed that it was not any major economic, financial or political factor that led to a meltdown. A typical trading practice in which a few key heavily shorted stocks by hedge fund giants were favored by a group of individual investors organized via Reddit’s wallstreetbets forum.

Market's volatility may persist for a few more days as a section of market participants have already raised concerns regarding a bubble in the market. Nevertheless, the fundamentals of the U.S. economy remain stable and the northbound journey of Wall Street is likely to resume soon.

Momentum Likely to Continue

Momentum investing calls for continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that a stock will only ascend in the short to intermediate term. Although coronavirus-induced woes are persisting in the United States, causing occasional market fluctuations, the overall movement of Wall Street is likely to remain northbound due to the five main drivers.

First, President Joe Biden and his administration has decided to meet the Trump administration's goal of immunizing 100 million people in 100 days despite a slower-than-expected rollout of COVID-19 vaccines. This means that the economy should reopen and gradually operate at the pre-pandemic level. Since the lockdowns imposed in March, the U.S. economy is operating at a significant sub-optimal level.

Second, President Joe Biden proposed a new $1.9 trillion coronavirus-aid package called “American Rescue Plan.” The proposed plan will include increasing direct payments to $2,000 from the existing $600 and supplemental unemployment benefits to $400 per week through September. It will provide support to small businesses and aid to state and local governments.

Third, on Jan 26, the IMF raised its global growth forecast for 2021 to 5.5% from 5.2% projected in October 2020. The agency reduced its projected global GDP contraction rate for 2020 to 3.5% from 4.4% in October. On Jan 5, the World Bank reported that the global economy is likely to grow 4% after an estimated 4.3% contraction in 2020.

Both agencies have said that the developed countries will be less affected owing to unprecedented fiscal support and major central banks' decision to pursue ultra-dovish monetary policies.

Fourth, the fourth-quarter earnings season has started with better-than-expected results. Strong overall earnings results and future guidance will support the current stock market valuation. As of Jan 29, the fourth-quarter earnings for the S&P 500 Index were projected to be down 2.6% year over year on 1.5% higher revenues. This is a notable improvement over the projection of a 7.8% decline in earnings on 0.3% higher revenues at the beginning of the reporting cycle.

Fifth, the Conference Board reported that its Consumer Confidence Index for the month of January improved moderately and came in at 89.3 compared to 87.1 in December which was revised downward from 88.6 reported earlier. The metric surpassed the consensus estimate of 87.5. Notably, the Expectations Index, which is a measure of consumers’ short-term (for the next six months) outlook for income, business and labor market conditions, increased from 87.0 in December to 92.5 in January.

Our Top Picks

We have narrowed down our search to six large-cap (market capital > $10 billion) momentum stocks that have witnessed robust earnings estimate revisions in the last 7 days and have strong upside left for 2021. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our six picks in the past three years.

Apple Inc. 's AAPL Services and Wearables businesses are expected to drive top-line growth in fiscal 2021 and beyond. Although its business primarily runs around its flagship iPhone, the Services portfolio has emerged as the new cash cow. Its focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul.

The company has an expected earnings growth rate of 36.3% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 10.9% over the last 7 days.

Ford Motor Co. F designs, manufactures, markets, and services a range of Ford cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles worldwide. It operates through three segments: Automotive, Mobility, and Ford Credit.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 7 days.

Citizens Financial Group Inc. CFG operates as the bank holding company for Citizens Bank, National Association that provides retail and commercial banking products and services in the United States. It operates in two segments, Consumer Banking and Commercial Banking.

The company has an expected earnings growth rate of 46.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.9% over the last 7 days.

Ally Financial Inc. ALLY provides various financial products and services to consumers, businesses, automotive dealers, and corporate customers primarily in the United States and Canada. It operates through the Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations segments.

The company has an expected earnings growth rate of 45.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the last 7 days.

Capital One Financial Corp. COF is primarily focused on consumer and commercial lending as well as deposit origination. Through the banking and non-banking subsidiaries, it provides various financial products and services to consumers, small businesses and commercial clients in the United States.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 18.8% over the last 7 days.

M&T Bank Corp. MTB operates as the holding company for Manufacturers and Traders Trust Company; and Wilmington Trust, National Association that provide banking services that offers deposits, business loans and leases, and credit cards and cash management, payroll and letters of credit services to small businesses and professionals.

The company has an expected earnings growth rate of 22.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8% over the last 7 days.

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Ford Motor Company (F) : Free Stock Analysis Report

M&T Bank Corporation (MTB) : Free Stock Analysis Report

Apple Inc. (AAPL) : Free Stock Analysis Report

Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report

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