Most of us probably remember learning about momentum in science class. The basic principle is this: Objects remain unchanged unless acted on by external forces. This concept also applies to momentum stocks in the markets.
Momentum investing is essentially the polar opposite of the oft-repeated “buy low, sell high” strategy. Instead of buying at a low price, investors find stocks that have been rising in the past three to 12 months and establish a position.
There is a certain logic to the strategy. Investors are well aware that timing the market can be a losing proposition. It is much easier to find a rising stock and jump on board instead of identifying a bottom in a stock price. Simply riding the positive momentum upward is appealing.
Whether you’re trying the strategy for the first time or adding to a portfolio of momentum stocks, these seven stocks are a buy:
- Moderna (NASDAQ:MRNA)
- Retail Value (NYSE:RVI)
- Standard Lithium (OTCMKTS:SLI)
- Duke Energy (NYSE:DUK)
- Equity Residential (NYSE:EQR)
- Otis Worldwide (NYSE:OTIS)
- Carrier Global (NYSE:CARR)
Momentum Stocks: Moderna (MRNA)
By now we’re all aware of Moderna. Given its importance in the ongoing pandemic, rarely a day goes by that it isn’t in the news. Because Moderna is so prevalent, investors are wondering where shares are headed.
Investors who follow Wall Street analysts will be confounded by their opinion of MRNA stock. Analyst consensus prices suggest that Moderna should trade around $188 per share. Even the highest analyst target price sits at only $299. That’s well below the current MRNA stock price of $336.
But from a pure momentum trading perspective, the message is clear. Moderna shares have been going up and will continue to rise. MRNA stock has momentum on its side, and it makes sense to get in now.
The stock has been on a consistent upward trend since the beginning of 2021. Moderna is up 213% year-to-date (YTD). In the last 3 months, shares have appreciated by 109%. And in the last 5 days, shares are up 36%.
The “sell high” crowd has been proven wrong by Moderna this year. That much is very clear.
It’s easy to argue that MRNA stock is overpriced given its price-to-earnings (P/E) ratio well in excess of 200. But Covid-19 case numbers are rising in all 50 states, and shares now have the fuel to burn even hotter.
Retail Value (RVI)
Retail Value is a REIT that purchases and operates retail shopping centers. Its share price has steadily risen throughout the year, which suggests the stock is worth watching. In fact, RVI stock is up 63% YTD.
It is fair to say Retail Value suffered a severe downturn due to the pandemic. And it is tough to fault the company for losses brought on by unforeseeable external forces like Covid-19. Nevertheless, those forces did drastically affect the company.
In the first quarter of 2020, Retail Value suffered a $13.1 million loss attributable to shareholders. It went from a stock trading in the low-to-mid $30s to prices under $10 overnight.
In 2021, it posted a Q1 net income of $3.2 million attributable to shareholders. First-quarter rental incomes are 80% of what they were a year earlier. But with the worst of the pandemic behind the company, its upward trajectory is clear.
Wall Street indicates that RVI stock should trade at its current price. That implies the stock’s price should plateau soon. However, its momentum indicates otherwise. It could simply continue to rise to those pre-pandemic prices — an upside of roughly 25%.
The economy is incredibly tumultuous now, making everything difficult to predict. But a rebound is in effect. That makes retail shopping an obvious choice for easy gains. RVI stock looks like a strong play on that idea.
Momentum Stocks: Standard Lithium (SLI)
Standard Lithium is probably the riskiest of any of the stocks on this list. That is partially because SLI stock is a “pick-and-shovel” play in the electric vehicle (EV) sector. EVs were hot last year and in the beginning of 2021 — and then they weren’t. But now the sector is picking up momentum again. Lithium itself is a core component in EV batteries, so companies like Standard Lithium are enjoying boosted demand.
The ebb and flow of the EV market isn’t the only thing that makes SLI stock risky. Its share prices spiked in mid-July on news that it had been added to the VanEck Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX). Shares spiked as a result, reaching a high of $8.30 on July 13. However, they quickly gave back those gains over the next few days. That indicates volatility is somewhat inherent in SLI shares.
Yet the broader trajectory of SLI stock prior to that price spike was evident. Since the start of the year, share prices rose from $2.40 to $5 prior to their ETF-fueled spike.
The company has a few other catalysts that should help maintain its 2021 momentum. For example, shares were listed on the New York Stock Exchange recently. This should allow the company greater access to capital as it grows. Additionally, its U.S.-based lithium operations may prove vitally important from a political and strategic standpoint.
Duke Energy (DUK)
Analysts and momentum are seemingly in disagreement regarding DUK stock. Shares are currently trading at analysts’ expected price. Yet its trajectory suggests it may march toward $112, the analysts’ high price.
Shares of the North Carolina-based natural gas and energy utilities company have moved from $89 to $104 this year. They’ve also moved from $99 to $104 in the last month alone. Granted, this isn’t a massive move; nor is it an exceedingly quick increase. But the momentum is there, and that high analyst price of $112 isn’t unattainable by any stretch of the imagination.
Investors who want to press their luck and test the momentum stock strategy can take solace in DUK stock’s dividend. That dividend currently sits at 98.5 cents and hasn’t been reduced since 2007. Over a 12 month period, that dividend could provide investors with $3.78 for every $100 of DUK stock they purchase. The dividend is a bonus in times of price appreciation, and in downturns it’s a buffer.
Momentum Stocks: Equity Residential (EQR)
Equity Residential is a rental apartments REIT which has rebounded nicely through 2021. Its stock is up 42% YTD and could test last year’s pre-pandemic highs. If that’s the case, then EQR stock has further to rise.
Rental prices are likely to continue increasing as demand rises. Fewer home buyers can afford the skyrocketing prices and thus more people are being forced into rentals. Of course, this is a burden on renters. However, it is also a boon to companies like Equity Residential that rent in prime urban markets across the U.S.
Those demand dynamics suggest that EQR stock may eclipse its pre-pandemic price of $88. It will also be interesting to see how many people return to big cities in which Equity Residential operates.
The exodus from cities like New York and San Francisco got a lot of attention, especially as it related to rental prices. The idea was that remote work would demolish previous housing trends and price dynamics. However, it looks like rental prices in San Francisco hit an inflection point in March. The same trend is clear in New York City. That’s bad for renters, but great for Equity Residential.
All of this may lead to greater-than-ever revenues for Equity Residential, which will only add to its current momentum.
Otis Worldwide (OTIS)
Otis Worldwide manufactures and installs elevators and escalators. OTIS stock has only been trading for a little over a year. In fact, it went public in mid-March of 2020, right at the depths of the market sell off.
In that time, OTIS stock has increased from $45 to $85. But the company has more than momentum to potentially send its prices higher.
A recent article in Barron’s predicted positive movement for OTIS stock based on market research. It stated:
“Otis [which makes elevators and escalators] has operationally underperformed peers in the past decade, due to a weaker exposure to a booming China, underinvestment, and the unwinding of previous overearning. With the Chinese market stabilizing and Otis’ capital expenditures rising to levels more in line with peers’, its relative underperformance will decline. Indeed, its organic growth shortfall versus peers has already been halved since 2016. Similarly, margins now appear sustainable.”
The article goes on to suggest that OTIS shares will hit $95 moving forward. It’s clear that Otis is a momentum stock with room to run.
Momentum Stocks: Carrier Global (CARR)
Carrier operates across three business segments: fire and security, HVAC and refrigeration. The business has both momentum and analyst sentiment on its side. Two-thirds of the 21 analysts who cover CARR stock currently rate it a buy. Their median price sits at $53.
In terms of momentum, shares have appreciated 14% over the past 3 months. Carrier stock is up nearly 30% YTD.
In Q1, Carrier announced that it witnessed a 21% increase in sales compared to the same period in 2020. It also increased its full-year 2021 outlook for sales growth to 7% to 10%.
Those number alone provide reason for optimism. However, those were released in late April. The heat waves of this summer happened after that full year outlook. When Q2 results are released, they may be revised upward to account for a likely increase in air conditioner revenues.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
