Top 3 Momentum Stocks of 2022

Today we're going to introduce our Top 3 Momentum Picks for 2022!

The reason this is so important is because momentum strategies find stocks that have the best chance of performing well in the near future.

The main idea is that stocks that are increasing in value are likely to continue to increase in value. And conversely, stocks that are declining are likely to continue to decline.

So if you're wondering how it works, what stocks we like and how to play it, then look no further because all of this info is contained below!

How To Use It: 

Where these strategies get complicated, is determining what constitutes quality momentum.

If two stocks go up 100% over a year, they may have had very different paths to get there. We find the stocks with strong and sustainable growth paths so that our faces don’t get ripped off on the reversal.

Therefore in order to determine momentum, we've created a proprietary system to help us weed out the good from the bad 👇 

Our Process:

1. High Momentum Stocks

   1. First and foremost, we need to find stocks with the highest momentum (percent change in price). Because we want to find stocks with high momentum, but don’t want to pick stocks that are only temporarily up, we are going to look at the momentum over multiple time windows of each stock under consideration. By looking at multiple time periods, we can be more confident that the upward trend will continue.

2. Quality of Momentum

   1. Secondly, we differentiate stocks by the quality of their momentum. The quality of momentum is another way to ask, how consistent was that increase in price?

   2. To return to our earlier example, if we have two stocks that both gained 100% over the last year but stock A got there with small steady incremental returns and stock B got there with a small number of big upward leaps, then we would consider stock A to have a high quality momentum and stock B to have low quality momentum.

3. Stock Beta Control

   1. Beta, in this case, is a measurement of how similar a stock’s movement is to the S&P 500. For example, if a stock moves exactly like the S&P 500, then it has a Beta of 1, if it moves exactly the opposite, then it has a Beta of -1.

   2. So why do we care about Beta? There are a couple reasons. We don’t want to pick stocks with very high Beta because then we are completely dependent on the direction of the S&P 500. But we also don’t want very low Beta (less 0), because the S&P 500 generally goes up. So we look for companies with a Beta lower than 1 within our high momentum and high momentum quality names because that means we get exposure to the general direction of the market.

Our Process Visualized:

So with that context, we've used the rules above to create an algorithm that screens for the 3 best stocks that fall within our criteria.

Check them out 👇 

Top 3 Momentum Picks:

1) AbbVie Inc. (ABBV):

• ABBV shows some of the strongest momentum over the 1 month, 12 Month, and 3 year periods relative to other stocks in our investment universe. It has one of the highest quality momentum compared against its peers, indicating a steady and consistent growth that is likely to continue.

• Additionally, it has a Beta of .8, indicating a strong positive relationship to movements in the broad stock market, but we expect resilience in its trend.

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