In this article, we will take a look at the 10 best stocks to buy for a month.
The momentum investing philosophy aims to leverage price movements of stocks. The key idea behind momentum investing is that price trends of stocks can persist for a certain time and investors can/should ride those trends and make the most out of them. If a stock is showing signs of going up, buy that stock and ride the upward price trend and sell it as soon as it shows signs of peaking. That’s momentum investing in simple terms and it sure looks straightforward and easy on paper. But does research provides any backing to this investment philosophy? Let’s find out.
Several research papers have shown stock momentum does play a key role in stock movements. These research papers show that stock prices do not follow random paths. Instead, their past movements and trends can help investors predict and foresee their future trends to some extent. In a paper titled The 52-Week High and Momentum Investing, Thomas George and Chuan-Yang Hwang quote research from Jegadeesh and Titman (1993) which says that stock returns show “momentum behavior at intermediate horizons.” The paper also says that a strategy that buys the top 10% and sells the bottom 10% of stocks ranked by returns during the past 6 months, and holds the positions for 6 months, produces profits of 1% per month. The paper also quotes research from Moskowitz and Grinblatt (1999) which says that momentum in individual stock returns is driven by momentum in industry returns.
The paper then shows the importance of 52-week highs and lows in investing and how different biases come into play in investors’ thought process when a stock hits 52-week high or low. The paper says:
“Our results indicate that the 52-week measure has predictive power whether or not individual stocks have had extreme past returns. This suggests that price level is important, and is consistent with an anchor-and-adjust bias. Traders appear to use the 52-week high as a reference point against which they evaluate the potential impact of news. When good news has pushed a stock’s price near or to a new 52-week high, traders are reluctant to bid the price of the stock higher even if the information warrants it. The information eventually prevails and the price moves up, resulting in a continuation. Similarly, when bad news pushes a stock’s price far from its 52-week high, traders are initially unwilling to sell the stock at prices that are as low as the information implies. The information eventually prevails and the price falls.”
Another famous research backs the claims on effectiveness of momentum investor. According to data from University of Chicago finance professor (and Nobel laureate) Eugene Fama and Dartmouth College finance professor Kenneth French, since 1927, a portfolio holding 10% of stocks with the best trailing 12-month returns would have beaten the broader market by 6.7 annualized percentage points.
AQR Capital in 2009 published a detailed research paper on momentum investing titled “The Case for Momentum Investing.” The paper summarized various studies and researches that point to the effectiveness of momentum investing. For example, the paper demonstrates average annual returns for portfolios grouped by momentum for a period starting from January 1927 to December 2008. The data shows that stocks with the best momentum easily outperform the stocks with the worst momentum, both in absolute terms and relative to the equity market as a whole.
The AQR research paper also highlights an important psychological factor that plays a key role in the success of momentum investing. Whenever a stock rises based on good news, the average investor tends to sell the stock to lock the gains. On the other hand when a company announces bad news, the average investor would hold on to the stock instead of quickly selling it in hopes of breaking even. This psychological factor is directly linked to momentum investing. The paper says:
“Investors (as human beings) are prone to what behavioral economists and experimental psychologists call the disposition effect. Investors tend to sell winning investments prematurely to lock in gains, and hold on to losing investments too long in the hope of breaking even. The disposition effect creates an artificial headwind: when good news is announced, the price of an asset does not immediately rise to its value because of premature selling. Similarly, when bad news is announced, the price falls less because investors are reluctant to sell.”
Tobias J. Moskowitz, PhD, in his paper titled Momentum Investing: Finally Accessible for Individual Investors, shares some data which compares the performance of long-only momentum portfolio to other long-only stock investing strategy during a 30-year period starting from December 1979 to December 2009. The analysis shows that momentum investing outperformed the market or a core index portfolio by a wide margin. For large-cap stocks, momentum outperformed the Russell 1000 by about 2 percent a year. A small-cap momentum index outperformed the Russell 2000 by 3.7 percent a year. In addition, momentum outperformed value by 1.5 percent a year and growth by more than 3 percent a year.
Our Methodology
For this article, we scanned the holdings of iShares MSCI USA Momentum Factor ETF (MTUM) and picked 10 stocks with the highest number of hedge fund investors. MTUM seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. For each stock we have mentioned its latest stock movements and its growth catalysts that are expected to sustain their upward stock momentum.
10 Best Stocks to Buy for a Month
10. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 59
General Electric Company (NYSE:GE) shares were up about 1.24% over the past 5 days through June 28.
Insider Monkey’s database of 943 hedge funds shows that 59 hedge funds tracked by Insider Monkey had stakes in General Electric Company (NYSE:GE) as of the end of the first quarter of 2023. The biggest stakeholder of General Electric Company (NYSE:GE) during this period was Chris Hohn’s TCI Fund Management which owns a $2.5 billion stake in the company.
Barclays Capital recently said in a note that investors are not recognizing General Electric Company (NYSE:GE)’s energy business’s growth potential. Barclays’ Julian Mitchell said there’s an ‘undiscovered’ value at General Electric’s Vernova segment.
Earlier in June, General Electric Company (NYSE:GE) Aerospace won a maximum $422.81 million firm-fixed price, requirements-type contract from Defense Logistics Agency for supplies related to the F-series engines (F101/110/118).
9. Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Holders: 67
Oracle Corporation (NASDAQ:ORCL) shares have gained about 12% over the past 30 days through June 27. Oracle Corporation (NASDAQ:ORCL) is upping its AI game at different fronts. Oracle Corporation (NASDAQ:ORCL) recently said it partnered with enterprise AI platform Cohere to provide generative AI services to help organizations automate end-to-end business processes.
Goldman Sachs recently upgraded the stock to Neutral from Sell after the company’s strong Q4 results. Oracle Corporation (NASDAQ:ORCL) also received upgrades from Citi, BofA, Barclays and Stifel.
A total of 67 hedge funds tracked by Insider Monkey were long Oracle Corporation (NASDAQ:ORCL) as of the end of the first quarter of 2023.
Ariel Focus Fund made the following comment about Oracle Corporation (NYSE:ORCL) in its Q1 2023 investor letter:
“Additionally, global leader in enterprise software, Oracle Corporation (NYSE:ORCL) traded higher in the quarter, driven by solid quarterly earnings, a material increase in the dividend as well as forward looking guidance that implies a substantial acceleration in organic cloud growth for full year 2023. We believe these results highlight ORCL’s ability to effectively cross-sell and upsell apps and infrastructure, as well as the emergence of the company’s cloud platform as a competitive offering.”
8. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 72
Eli Lilly and Company (NYSE:LLY) shares have gained about 8% over the past 30 days as of June 27. Eli Lilly and Company (NYSE:LLY) is making headlines due to its weight loss drug retatrutide. Eli Lilly and Company (NYSE:LLY) recently said that patients in Phase 2 clinical trial for retatrutide saw a mean weight reduction of up to roughly 58 pounds, or 24% of their body weight, after 48 weeks.
As of the end of the first quarter of 2023, 72 hedge funds tracked by Insider Monkey had stakes in Eli Lilly and Company (NYSE:LLY). The biggest stakeholder of Eli Lilly and Company (NYSE:LLY) during this period was Rajiv Jain’s GQG Partners which owns a $1 billion stake in the company.
7. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 72
As of June 28 Broadcom Inc. (NASDAQ:AVGO) shares have gained about 5% in the past 30 days. On June 1 Broadcom Inc. (NASDAQ:AVGO) posted fiscal second quarter results that were better than expected. Broadcom Inc. (NASDAQ:AVGO)’s adjusted EPS in the period came in at $10.32, beating estimates by $0.18. Revenue in the quarter jumped 7.8% year over year to reach $8.73 billion, beating estimates by $20 million.
As of the end of the first quarter of 2023, 72 hedge funds tracked by Insider Monkey had stakes in Broadcom Inc. (NASDAQ:AVGO).
6. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 73
As of June 27, Exxon Mobil Corporation (NYSE:XOM) shares had gained about 1.92% over the past 5 days. Exxon Mobil Corporation (NYSE:XOM) is slowly picking up momentum even though it has slipped about 1.84% year to date amid volatility in oil prices and recession worries. Exxon Mobil Corporation (NYSE:XOM) is one of the best stocks to buy for a month or a year since the company pays solid and regular dividends and it has long-term growth catalysts. Some analysts believe natural gas to be a strong growth catalyst for Exxon Mobil Corporation (NYSE:XOM) as gas demand and prices are expected to increase in the future.
As of the end of the first quarter of 2023, 73 hedge funds tracked by Insider Monkey had stakes in Exxon Mobil Corporation (NYSE:XOM). The biggest stakeholder of Exxon Mobil Corporation (NYSE:XOM) during this period was Rajiv Jain’s GQG Partners which owns a $2.15 billion stake in the company.
5. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 75
Merck & Co., Inc. (NYSE:MRK) shares were up about 3.8% over the past 30 days through June 28. As of the end of the first quarter of 2023, 75 hedge funds tracked by Insider Monkey had stakes in Merck & Co., Inc. (NYSE:MRK). The biggest stakeholder of Merck & Co., Inc. (NYSE:MRK) was Cliff Asness’s AQR Capital Management which owns a $298.4 million stake in the company.
4. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 132
NVIDIA Corporation (NASDAQ:NVDA) shares have already gained about 191% in 2023 through June 28. NVIDIA Corporation (NASDAQ:NVDA) is rising yet again after an engineering consortium called MLCommons revealed that Nvidia’s (NVDA) H100 GPUs set new records. According to MLCommons, NVIDIA Corporation (NASDAQ:NVDA)’s GPUs were the fastest when it comes to training large language models.
Ithaka US Growth Strategy made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2023 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence, machine learning, and autonomous driving. The stock’s appreciation in the quarter was twofold. First, the stock benefi ted from tremendous excitement surrounding the release of more advanced chatbots, specifi cally ChatGPT, and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future. Second, Nvidia posted a clean beat and raise quarter in mid-February, with investors becoming increasingly convinced the company and its suppliers are adequately working through the build up in channel inventories, which is reducing overall fears of ongoing inventory write-offs.”
3. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 108
Netflix, Inc. (NASDAQ:NFLX) shares have gained about 6% over the past one month as of June 27. Earlier in June Netflix, Inc. (NASDAQ:NFLX) jumped after BofA said in a note that Netflix’s password sharing crackdown could produce better-than-expected results which could cause subscriber growth for the company. BofA analysts also increased their price target for Netflix, Inc. (NASDAQ:NFLX) to $490 from $410.
As of the end of the first quarter of 2023, 108 hedge funds tracked by Insider Monkey had stakes in Netflix, Inc. (NASDAQ:NFLX). The biggest stakeholder of Netflix, Inc. (NASDAQ:NFLX) during this period was Boykin Curry’s Eagle Capital Management which owns a $1.5 billion stake in the company.
2. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 220
Meta Platforms, Inc. (NASDAQ:META) was gaining momentum as of June 28 after Citi analyst Ronald Josey recently said in a note that monetization and engagement on Instagram was improving. Josey, who has a Buy rating and a $360 price target on Meta Platforms, Inc. (NASDAQ:META) stock, said that Instagram’s YoY monthly active user growth this quarter was higher than TikTok’s.
FPA U.S. Core Equity Fund made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its first quarter 2023 investor letter:
“In last quarter’s commentary I explained a large part of these companies’ underperformance in 2022 was due to how certain companies mistook what was at least a partial demand pull-forward during the pandemic as a permanent business accelerant and as a result, expanded their cost structure as fast if not faster than revenue. Now companies such as Meta Platforms, Inc. (NASDAQ:META) are cutting what they deem to be unnecessary costs. META’s Chairman and CEO Mark Zuckerberg is now calling 2023 “the year of efficiency” while announcing another 10,000 layoffs on March 14 in addition to the previously announced 11,000 job cuts in November 2022. Additionally, META says it will no longer fill 5,000 previously open positions. META believes these efficiencies will result in $3 billion in annual cost savings or nearly 12% of its selling, general and administrative expenses for 2022.13 The market responded favorably to such moves by META, Amazon and Alphabet, which sent their stock prices up 76.1%, 23.0% and 17.2%, respectively, during the first quarter.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 289
Microsoft Corporation (NASDAQ:MSFT) is perhaps one of the best stocks to buy for years not just a month since the company is apparently just getting started on its AI journey. Microsoft Corporation (NASDAQ:MSFT) had already gained about 40% year to date through June 28.
Recently, it was reported that Congresswoman Nancy Pelosi exercised 50 call options on Microsoft Corporation (NASDAQ:MSFT) with a strike price of $180. This translates in purchase of 5,000 Microsoft Corporation (NASDAQ:MSFT) shares worth between $500,001 and $1 million.
Microsoft Corporation (NASDAQ:MSFT) was the most popular stock among hedge funds tracked by Insider Monkey as of the end of the first quarter of 2023.
L1 Capital International Fund made the following comment about Microsoft Corporation (NASDAQ:MSFT) in its first quarter 2023 investor letter:
“We commented in the December 2022 Quarterly Report “sentiment towards many high-quality technology and ecommerce related businesses like Amazon and Alphabet is negative. Capital flows and an over-emphasis on short-term challenges is driving share prices well below fair value, providing compelling investment opportunities for longer term investors”. In that report we outlined in detail why Amazon’s share price has been oversold and offered compelling value.
During the March 2023 quarter the share price of many large capitalisation technology companies increased significantly. The Fund has investments in Alphabet, Amazon and Microsoft Corporation (NASDAQ:MSFT) and their share prices increased 17%, 23% and 20% (in U.S. dollars), respectively. While we continue to see value in these privileged, high-quality businesses, share prices are no longer trading at materially oversold levels and we have selectively started to trim some of the Fund’s exposure. Microsoft was trimmed due to share price performance and position size.”
You can also take a peek at 12 Best 5G Stocks To Buy Now and 10 Best Fast Growth Stocks To Buy.
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Disclosure: None. 10 Best Stocks to Buy for a Month is originally published on Insider Monkey.
