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Momentum investing is essentially the opposite of the tried-and-tested Wall Street adage -- "buy low and sell high." Investors following this investing style typically avoid betting on cheap stocks and waiting long for them to recover. They believe instead that one could make far more money in lesser time by "buying high and selling higher."
Everyone likes betting on fast-moving trending stocks, but it isn't easy to determine the right entry point. These stocks often lose momentum when their future growth potential fails to justify their swelled-up valuation. In that phase, investors find themselves invested in shares that have limited to no upside or even a downside. So, betting on a stock just by looking at the traditional momentum parameters could be risky at times.
It could be safer to invest in bargain stocks that have been witnessing price momentum recently. While the Zacks Momentum Style Score (part of the Zacks Style Scores system), which pays close attention to trends in a stock's price or earnings, is pretty useful in identifying great momentum stocks, our 'Fast-Paced Momentum at a Bargain' screen comes handy in spotting fast-moving stocks that are still attractively priced.
There are several stocks that currently pass through the screen and Compass Diversified Holdings (CODI) is one of them. Here are the key reasons why this stock is a great candidate.
Investors' growing interest in a stock is reflected in its recent price increase. A price change of 0.4% over the past four weeks positions the stock of this company well in this regard.
While any stock can see a spike in price for a short period, it takes a real momentum player to deliver positive returns for a longer time frame. CODI meets this criterion too, as the stock gained 5.6% over the past 12 weeks.
Moreover, the momentum for CODI is fast paced, as the stock currently has a beta of 1.79. This indicates that the stock moves 79% higher than the market in either direction.
Given this price performance, it is no surprise that CODI has a Momentum Score of B, which indicates that this is the right time to enter the stock to take advantage of the momentum with the highest probability of success.
In addition to a favorable Momentum Score, an upward trend in earnings estimate revisions has helped CODI earn a Zacks Rank #2 (Buy). Our research shows that the momentum-effect is quite strong among Zacks Rank #1 and #2 stocks. That's because as covering analysts raise their earnings estimates for a stock, more and more investors take an interest in it, helping its price race to keep up. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>
Most importantly, despite possessing fast-paced momentum features, CODI is trading at a reasonable valuation. In terms of Price-to-Sales ratio, which is considered as one of the best valuation metrics, the stock looks quite cheap now. CODI is currently trading at 0.80 times its sales. In other words, investors need to pay only 80 cents for each dollar of sales.
So, CODI appears to have plenty of room to run, and that too at a fast pace.
In addition to CODI, there are several other stocks that currently pass through our 'Fast-Paced Momentum at a Bargain' screen. You may consider investing in them and start looking for the newest stocks that fit these criteria.
This is not the only screen that could help you find your next winning stock pick. Based on your personal investing style, you may choose from over 45 Zacks Premium Screens that are strategically created to beat the market.
However, keep in mind that the key to a successful stock-picking strategy is to ensure that it produced profitable results in the past. You could easily do that with the help of the Zacks Research Wizard. In addition to allowing you to backtest the effectiveness of your strategy, the program comes loaded with some of our most successful stock-picking strategies.
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Compass Diversified Holdings (CODI) : Free Stock Analysis Report
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