Patience is one of the key virtues of a successful investor. Even the best of stocks doesn’t move parabolic. There are phases of sharp uptrend, correction, and consolidation. Invariably, parabolic moves seen in some speculative are followed by a deep correction. There are several strategies to make quick money from the markets. A time-tested strategy is to consider exposure to momentum stocks.
I would define momentum stocks as names that are in a sharp uptrend that’s supported by fundamentals and good trading volume. Because of the positive news flow, small dips in momentum stocks are bought into. Entry at the right time can give investors a quick 30% to 50% return from these stocks.
This column focuses on three momentum stocks to buy that look attractive even after strong year-to-date run-ups. I believe that these momentum stocks also represent companies with strong fundamentals and are worth holding for the next few years.
Let’s discuss these three momentum stocks to buy.
Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) stock has skyrocketed by 470% in the last 12 months. I believe that there are multiple reasons to remain bullish on further upside. First, MNSO stock still trades at an attractive forward price-earnings ratio of 34.
Further, Miniso has focused on shareholder value creation and recently announced a share repurchase program of $200 million. Additionally, the company has initiated dividends with the current yield at 1.55%.
The third reason to be bullish is robust revenue growth and EBITDA margin expansion. For Q4 2023, Miniso reported revenue and EBITDA growth of 40.3% and 103.8%, respectively, on a year-on-year basis. EBITDA margin expanded by 780 basis points for the comparable period.
Miniso has been pursuing aggressive global store expansion. In the last financial year, 592 new stores were opened. This will add to the growth momentum in the coming quarters. Given these factors, MNSO stock is likely to maintain positive momentum.
Li Auto (LI)
In August, Li Auto (NASDAQ:LI) stock touched highs of $47. The stock has corrected to current levels of $35.3. I see this correction within an uptrend as a golden opportunity to accumulate LI stock.
I believe that there are multiple fundamental factors that will support the positive momentum. First, the company has continued to report stellar delivery growth. For August, Li reported growth of 663.8% on a year-on-year basis. Given the delivery numbers, the company is positioned to report strong quarterly results.
Further, Li has launched multiple new models in the last 12 months. This has translated into robust delivery growth. I expect the momentum to be sustained in 2024. A key reason is the expected launch of Li MEGA in January 2024. Li believes that the launch of this model will help accomplish the “goal of making Li Auto China’s best-selling premium auto brand in 2024.”
Another major reason to like Li is the company’s strong financial flexibility. For Q2 2023, Li reported free cash flow of $1.33 billion. Further, the Company ended the quarter with cash and equivalents of $10.17 billion. High financial flexibility positions Li for aggressive retail expansion and investment in innovation.
Costco Wholesale (COST)
Costco Wholesale (NASDAQ:COST) is my top pick from the retail sector. It’s also among the best momentum stocks to buy even after an upside of 23% for year-to-date. With the holiday season approaching, I would bet on a further rally for this 0.73% dividend yield stock.
It’s worth noting that even in challenging times for the retail sector, Costco continues to deliver robust numbers. For the first 52 weeks of its 53-week fiscal year ended August 27, 2023, Costo has reported 4.6% revenue growth to $232.95 billion. An important point to note is that comparable store sales increased by 5.2% on a year-on-year basis. Given the sales momentum, it’s not surprising that COST stock commands a valuation premium.
I must add here that in the last 12 months, Costco has generated $4.4 billion in membership fee revenue. The Company has three warehouses in China as compared to 586 in the United States. Expansion in China would have a significant impact on membership revenue growth in the coming years.
On the date of publication, Faisal Humayun did not hold (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.
