5 Momentum Stocks Flying High in August, Promising More Upside

Wall Street is having a dream run since Mar 23, defying coronavirus-induced economic woes, and August is no exception. All the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have rallied 50% or more from their recent low levels recorded on Mar 23.

The  S&P 500 is just 0.3% away from its all-time high recorded on Feb 19 and the Nasdaq Composite crossed the 11,000 landmark on Aug 5, having posted 33 fresh highs year to date. The Dow is approaching 28,000 and is just 2.4% away from becoming green year to date.

The stock market rally is continuing this month even though the U.S. Congressional negotiations regarding the size and scope of the second round of fiscal stimulus remains mired in stalemate. Meanwhile, several momentum stocks with a top Zacks Rank have provided more than 15% returns in the past month. These stocks also have more upside left in the near term.   

Momentum Likely to Continue Despite Pandemic

Momentum investing calls for a 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.

In the current scenario, the market’s worst appears behind us as negative estimates are already factored in valuations. 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.

Better-than-expected second-quarter U.S. GDP and corporate earnings indicated that the pandemic-led devastations may not be as ruthless as previously expected. Meanwhile, despite the second wave of COVID-19 since mid-June, a few important economic data for July that were released, namely the jobs data, the unemployment rate, manufacturing, services, vehicle sales, industrial production, and retail sales are encouraging. This indicates that the U.S. economy will gradually return to the pre-pandemic level as more parts of it reopen.

Upward Revision of EPS Estimates – A Crucial Indicator

An upward earnings per share (EPS) estimate revision for 2020 of any stock simply means the market is expecting the company to do good business this year. A positive EPS estimate revision during the period of historic financial turmoil highlights a solid business model and robust growth potential of these companies. Market participants are likely to be interested in those stocks that have witnessed positive EPS estimate revisions recently — within the last 7 to 30 days.

Our Top Picks

The chart below shows the price performance of our five picks in the past month.

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