Zacks.com featured highlights include Extreme Networks, Builders FirstSource and M.D.C. Holdings
For Immediate Release
Chicago, IL – August 22, 2023 – Stocks in this week’s article are Extreme Networks, Inc. EXTR, Builders FirstSource, Inc. BLDR and M.D.C. Holdings, Inc. MDC.
3 Momentum Anomaly Stocks to Buy on Markets' Gradual Slide
The equity markets witnessed a downtrend over the past few trading days as an apparent market correction pulled back the growth momentum and triggered a mini slide. Despite signs of a resilient economy, moderating inflation and solid corporate earnings, the markets appeared to be under "constructive rotation."
The downtrend was further hastened by the release of the minutes of the Federal Reserve's meeting in July, which suggested that more rate hikes are in the cards to tame inflationary pressures. This, in turn, helped the 10-year Treasury yield rise to its highest level since October 2022 before settling a notch lower at 4.25%.
With uncertainty becoming the norm, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks when value or growth investing fails to generate the desired profits.
This approach primarily tends to follow the adage, "the trend is your friend." At its core, momentum investing is "buying high and selling higher." It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. But before we delve deep into it, let us try to fathom why does the momentum strategy at all work?
There are several behavioral biases that most investors exhibit in their decision-making. And these emotional responses, or rather mistakes, make the momentum strategy work.
For example, some investors are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices. On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such errors in judgment.
Furthermore, investors initially tend to underreact to news, events or data releases. However, once things become clear, they have a habit of going with the flow and overreacting, causing dramatic price reactions. These behavioral problems extend trends, thus opening up huge opportunities for momentum players.
To sum up, momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.
In this context, stocks like Extreme Networks, Inc., Builders FirstSource, Inc. and M.D.C. Holdings, Inc. are worth betting on.
Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child's play.
Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.
Here are three of the nine stocks that made it through this screen:
Headquartered in Morrisville, NC, Extreme Networks provides software-driven networking solutions worldwide to more than 50,000 customers. It offers end-to-end, cloud-driven networking solutions to help accelerate the digital transformation efforts of its clients. The stock has gained 104.4% in the past year but declined 12.7% in the past week. Extreme Networks has a Momentum Score of A.
Based in Dallas, TX and incorporated in 1998, Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. It offers an integrated solution to customers by providing manufacturing, supply and installation of a full range of structural and related building products. The stock has appreciated 107.1% in the past year but lost 9.3% in the past week. Builders FirstSource has a Momentum Score of A.
Headquartered in Denver, CO, M.D.C. Holdings is engaged in homebuilding and financial services in the United States. Its homebuilding subsidiaries, which operate under the name Richmond American Homes, have helped more than 240,000 homebuyers achieve their dream homes. The stock has rallied 40.3% in the past year but has lost 7.1% in the past week. M.D.C. Holdings has a Momentum Score of A.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2138532/3-momentum-anomaly-stocks-to-buy-as-markets-slide-gradually
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
Extreme Networks, Inc. (EXTR) : Free Stock Analysis Report
M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
