For Immediate Release
Chicago, IL – November 17, 2022 – Stocks in this week’s article are CONSOL Energy Inc. CEIX, Bunge Ltd. BG and W. R. Berkley Corp. WRB.
3 Momentum Anomaly Stocks to Buy on Low Inflation Data
The broader equity indices have witnessed a short-term rally in the past week despite the fourth successive 75 basis point rate hike by the Fed with better-than-expected inflation data. Latest data showed that the producer price index rose 0.2% in October against broad-based expectations of a 0.4% increase. This fueled investor sentiments as it portrayed a slowdown in inflation that had soared in the post-pandemic era as supply chains could not keep up with pent-up demand. As the Fed has vowed to continue its aggressive stance to curb inflation, markets await definite cues to the future rate hike program and its likely impact on the economy.
With uncertainty becoming the norm of the day, 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, are the very reason that makes 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 CONSOL Energy Inc., Bunge Ltd. and W. R. Berkley Corp. 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 the three of the four stocks that made it through this screen:
Canonsburg, PA-based CONSOL Energy is a producer and exporter of high-Btu bituminous thermal coal and metallurgical coal. It owns and operates some of the most productive longwall mining operations in the Northern Appalachian Basin. CONSOL Energy has gained 161% in the past year but a mere 4.4% in the past week. It has a Momentum Score of A.
Headquartered in St. Louis, MO, Bunge operates as an agribusiness and food company worldwide. It is reportedly the world’s leader in oilseed processing and a leading producer and supplier of specialty plant-based oils and fats. The stock has appreciated 4.3% in the past year but declined 0.2% in the past week. It has a Momentum Score of B.
Founded in 1967 and based in Greenwich, CT., W.R. Berkley is one of the largest commercial lines property casualty insurance providers in the United States. The company offers a variety of insurance services, from reinsurance to workers comp third-party administrators. The stock has rallied 26.9% in the past year but declined 6.1% in the past week. It has a Momentum Score of A.
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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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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
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