In this article, we discuss the 5 best momentum stocks to invest in. If you want to read our detailed analysis of these stocks, go directly to the 15 Best Momentum Stocks To Invest In.
5. Capital One Financial Corporation (NYSE: COF)
Number of Hedge Fund Holders: 59
Percentage Gain in Last Month: 15.23%
Capital One Financial Corporation (NYSE: COF) is a Virginia-based financial services holding company. It is placed fifth on our list of 15 best momentum stocks to invest in. On June 28, the firm declared a quarterly dividend of $0.60 per share, an increase of 50% compared to previous dividend of $0.40 per share. The forward yield was 1.49%. The dividend is payable to shareholders by August 20. The company has a market cap of close to $80 billion and posted more than $18 billion in revenue last year.
On July 23, investment advisory BMO Capital reiterated an Outperform rating on Capital One Financial Corporation (NYSE: COF) stock and raised the price target to $184 from $176, highlighting that the strong second quarter earnings for the firm would spur growth.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in Capital One Financial Corporation (NYSE: COF) with 6.5 million shares worth more than $828 million.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Capital One Financial Corporation (NYSE: COF) was one of them. Here is what the fund said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. In financials, we increased our position in Capital One on the premise that a benign consumer credit environment should be sustainable in light of unprecedented government support.”
4. CBRE Group, Inc. (NYSE: CBRE)
Number of Hedge Fund Holders: 30
Percentage Gain in Last Month: 16.75%
CBRE Group, Inc. (NYSE: CBRE) is a Texas-based real estate firm that focuses on investments in commercial properties. It is ranked fourth on our list of 15 best momentum stocks to invest in. In earnings results for the second quarter, posted on July 29, the firm reported earnings per share of $1.36 and a revenue of $6.4 billion, up more than 20% compared to the revenue over the same period last year and beating estimates by $320 million. The company was founded in 1906 and has a market cap of $31 billion.
On June 14, investment advisory Wolfe Research initiated coverage of CBRE Group, Inc. (NYSE: CBRE) stock with an Outperform rating and a price target of $112, underlining that the firm was set to benefit from favorable macro trends.
At the end of the first quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $2.6 billion in CBRE Group, Inc. (NYSE: CBRE), down from 31 in the previous quarter worth $2.1 billion.
In its Q1 2021 investor letter, Third Avenue Management, an asset management firm, highlighted a few stocks and CBRE Group, Inc. (NYSE: CBRE) was one of them. Here is what the fund said:
“CBRE Group, Inc. (the largest commercial real estate services firm globally with leading brokerage, facilities management, consulting, and asset management offerings) revealing that it had agreed to acquire a 35% stake in Industrious—one of the largest networks of coworking and private office spaces in North America. Alongside the investment, CBRE’s management team (headed by CEO Bob Sulentic) has created a unique structure whereby it will also contribute its existing shared workspace portfolio (i.e., Hana) thus positioning the combined platform to take significant market share in the rapidly expanding “flexible workplace” market given CBRE’s reach (the company operates in more than 100 countries and counts 90% of Fortune 100 companies as clients) and a coworking model that could be viewed more favorably by property owners (e.g., revenue share agreements in lieu of fixed-cost leases through special purpose vehicles).”
3. Pfizer Inc. (NYSE: PFE)
Number of Hedge Fund Holders: 65
Percentage Gain in Last Month: 21.26%
Pfizer Inc. (NYSE: PFE) is placed third on our list of 15 best momentum stocks to invest in. The company makes and sells biopharma products and is headquartered in New York. On August 16, the firm announced that it had submitted early-stage data to regulatory authorities in the United States to support the evaluation of COVID-19 vaccine booster shots. The biopharma firm will submit the data to the European authorities as well. The company has developed the vaccine in partnership with BioNTech.
On July 30, investment advisory Mizuho maintained a Neutral rating on Pfizer Inc. (NYSE: PFE) stock and raised the price target to $43 from $42, noting that the firm delivered an impressive beat and raise in the earnings results for the second quarter.
At the end of the first quarter of 2021, 65 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Pfizer Inc. (NYSE: PFE), up from 63 in the preceding quarter worth $1.8 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Pfizer Inc. (NYSE: PFE) was one of them. Here is what the fund said:
“Our underweights in health care and staples contributed to relative performance during the period. As we continue to focus the portfolio on high-conviction ideas, we sold Pfizer in late 2020, in the health care sector.”
2. Paycom Software, Inc. (NYSE: PAYC)
Number of Hedge Fund Holders: 46
Percentage Gain in Last Month: 28.54%
Paycom Software, Inc. (NYSE: PAYC) is ranked second on our list of 15 best momentum stocks to invest in. The company is based in Oklahoma and provides cloud-based human capital management solutions. In earnings results for the second quarter, posted on August 3, the firm reported earnings per share of $0.97, beating market estimates by $0.13. The revenue over the period was $242 million, up more than 33% compared to the revenue over the same period last year and beating estimates by $9.9 million.
On August 4, investment advisory Jeffeiries maintained a Buy rating on Paycom Software, Inc. (NYSE: PAYC) stock and raised the price target to $500 from $470, underlining that investors will reward the return to greater than 30% growth.
At the end of the first quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $969 million in Paycom Software, Inc. (NYSE: PAYC), up from 35 in the previous quarter worth $748 million.
In its Q4 2020 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Paycom Software, Inc. (NYSE: PAYC) was one of them. Here is what the fund said:
“Paycom is a cloud-based SaaS provider for human capital management. Its simple yet innovative single-instance software initially targeted small and mid-size businesses, and it is being adopted widely. The company has a highly repeatable sales process driven by more than 90% customer retention and a solid track record for selling more to existing customers while acquiring new users. We also like Paycom’s founder/CEO and his impressive track record for value-creating reinvestment. Despite the challenges created by the pandemic, revenue grew 14% in the fourth quarter and for 2020. Additionally, we believe Paycom is well-positioned to benefit from digital transformation as more corporate functions move to the cloud.”
1. Nucor Corporation (NYSE: NUE)
Number of Hedge Fund Holders: 25
Percentage Gain in Last Month: 37.48%
Nucor Corporation (NYSE: NUE) is a North Carolina based steel manufacturer. It is placed first on our list of 15 best momentum stocks to invest in. On July 22, the firm reported earnings for the second quarter, reporting earnings per share of $5.04 beating market estimates by $0.32. The revenue over the period was $8.7 billion, up more than 103% compared to the revenue over the same period last year and beating estimates by $550 million. The stock stands to benefit from the recent passing of an infrastructure bill in the US Senate.
On July 1, investment advisory Deutsche Bank reiterated a Hold Nucor Corporation (NYSE: NUE) stock but raised the price target to $100 from $75, noting that a correction was likely in hot rolled coil price forecasts owing to an increase in supply.
At the end of the first quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $191 million in Nucor Corporation (NYSE: NUE), down from 29 in the preceding quarter worth $138 million.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE: NUE) was one of them. Here is what the fund said:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic
conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.
The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
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