7 Hot Momentum Stocks to Watch in 2018

The year 2017 has been spectacular for the U.S. stock markets, which are now hitting all-time highs almost on a daily basis.

On Dec 18, major stock indexes ended at record highs on the anticipation that the Republicans will be successful in passing their proposed tax-cut legislation. While the Dow closed at an all-time high of 24,792.20, the S&P 500 index closed at 2,690.16, which are now up roughly 5% and 3% in the past one-month time-frame, respectively.

The S&P 500 is in the midst of one of the strongest bull runs since the Second World War, per a recently published article. Last month, the index hit the 2,600 mark for the first time during intraday trading. The tech-laden Nasdaq composite index also did not fall behind when it crossed the 7,000 mark for first time earlier this month during intraday trading sessions and closed the day at 6,994.76.

Currently, the S&P 500 is up roughly 19.7% year to date (YTD), while the Dow and Nasdaq climbed about 25.2% and 28.9%, respectively.

Factors Driving the Rally

Robust Corporate Earnings: Strong corporate earnings report and better-than-expected performance from the corporate giants have boosted investor sentiments. The U.S. companies have posted all-time record earnings in the third quarter which translates into two successful quarters of corporate earnings. Notably, the total earnings for S&P 500 companies were up 6.9% year over year during the third quarter of 2017 and is projected to climb 8.8% year over year in the fourth quarter, per our latest Earnings Preview.

Strong Economic Data: The U.S. economy witnessed the fastest growth rate since 2014 in the third quarter, surpassing the expectations of the economists and analysts. Per the second estimate, the U.S. GDP expanded at an annual rate of 3.3% during the third quarter, higher than 3.1% recorded during the previous quarter.

The Federal Reserve now envisions the U.S. economy to grow at a rate of 2.5% in both 2017 and 2018, up from previous forecast of 2.4% and 2.1%, respectively, in September.

It may be noted here that the U.S. unemployment rate is currently at 17-year low while the consumer confidence hit 17-year high during the last week of November. Consumer Confidence Index increased from 126.2 in October to 129.5 last month, marking fifth consecutive increase. Moreover, the United States created 228,000 jobs in November while the unemployment rate remained at a 17-year low of 4.1%.

In September, the U.S. Consumer Spending logged its biggest increase since 2009. According to a report by the Commerce Department, consumer spending advanced at 2.3% during the third quarter of 2017.

Business-Friendly Policies & Proposed Tax-cuts: Recently, both Senate and House have voted to pass the $1.5-trillion proposed Republican tax plan, which gives American corporate a massive and permanent tax break, repeals the individual mandate of the Affordable Care Act and temporary rate cuts for individuals.

The bill lowers corporate tax rate to 21% from 35%. The Republicans also repealed the corporate minimum alternative tax of 20%. The bill also minimizes tax liabilities for American companies abroad, encouraging them bring back their money in the United States. Such corporate income brought back from overseas will be taxed in the range of 8-15.5% instead of present tax rate of 35%.

Rate Hike and 2018 Outlook: As widely anticipated, the Federal Reserve raised the benchmark interest rate by a quarter percentage point for the third time this year, pushing the target range to 1.25-1.5%, following a 7-2 vote. The Fed believes that the economy has strengthened to support these hikes. The Fed eyes three more hikes in 2018 and two in 2019, acknowledging the fact that inflation continues to its fall behind its 2% target. The inflation forecast for 2018 got a modest bump, from 1.6% to 1.7%.  

The committee strengthened some of the wording regarding the economy in its post-meeting statement. The Fed stated that “economic activity will expand at a moderate pace and labor market conditions will remain strong”.

Time to Buy Momentum Stocks

Upbeat corporate earnings, strengthening economy and President Donald Trump’s business-friendly policies are expected to boost the broader equity market in 2018. This calls for investing in momentum stocks that can help investors make the most of this current bullish trend.

However, picking the right momentum stocks may baffle even seasoned investors, let alone the new ones, who are planning to enter the uncharted world of jam-packed trades.

With our Style Score system we have singled out the stocks which can aid you in beating the market.

The Zacks Momentum Style Score indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success.

Our research shows that stocks with a Momentum Score of A when combined with a Zacks Rank #1 (Strong Buy), offer the best upside potential in the short term. You can see the complete list of today’s Zacks #1 Rank stocks here. Further, we have refined our search by considering stocks with price as a % of 52-week high/low greater than 80.

Our Picks

We have listed below seven hot stocks sporting a Zacks Rank #1 and Momentum Score A.

Conn’s, Inc. CONN, a specialty retailer of durable consumer goods and related services in the United States, has market capitalization of roughly $1.2 billion. The company has so far returned about 182.2% year to date, which is roughly 9 times the S&P 500’s corresponding return. The stock has an expected earnings growth of 124.5% for next fiscal year. Price as a % of 52-week high/low is 100%.

(Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here.)

Winnebago Industries, Inc. WGO, a leading manufacturer of recreation vehicles, has market capitalization of roughly $1.8 billion. The company has returned about 78.4% year to date, above the S&P 500’s corresponding return. The expected earnings growth the stock for the next year is 19.8%. Price as a % of 52-week high/low is 95.5%.

HollyFrontier Corporation HFC, which engages in refining petroleum, has market capitalization of roughly $9 billion. The company has returned about 54.5% year to date, above the S&P 500’s corresponding return. The stock has an expected earnings growth of 24.6% for the next year. Price as a % of 52-week high/low is 100%.

Pampa Energia S.A. PAM is a fully integrated electricity company based in Argentina. It has market capitalization of roughly $4.8 billion. The company has returned about 93.7% so far this year, higher than the S&P 500’s corresponding return. The stock has an expected earnings growth of 52% for the next year. Price as a % of 52-week high/low is 90.4%.

Westlake Chemical Corporation WLK, a vertically integrated international manufacturer and supplier of petrochemicals, polymers and fabricated products, has market capitalization of roughly $13.6 billion. The company has returned about 86.9% year to date, higher than the S&P 500’s corresponding return. The stock has an expected earnings growth of 21.7% for the next year. Price as a % of 52-week high/low is 100%.

Centene Corporation CNC, which is a diversified and multi-national healthcare enterprise, has market capitalization of roughly $17.6 billion. The company has returned about 80.8% so far this year, above the S&P 500’s corresponding return. The stock has an expected earnings growth of 14.9% for the next year. Price as a % of 52-week high/low is 98.3%.

Kennametal Inc. KMT is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. It has market capitalization of roughly $3.9 billion. The company has returned about 55.4% year to date, above the S&P 500’s corresponding return. The stock has an expected earnings growth of 14.3% for the next fiscal year. Price as a % of 52-week high/low is 97.7%.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Pampa Energia S.A. (PAM) : Free Stock Analysis Report
 
Winnebago Industries, Inc. (WGO) : Free Stock Analysis Report
 
Westlake Chemical Corporation (WLK) : Free Stock Analysis Report
 
Kennametal Inc. (KMT) : Free Stock Analysis Report
 
Centene Corporation (CNC) : Free Stock Analysis Report
 
HollyFrontier Corporation (HFC) : Free Stock Analysis Report
 
Conn's, Inc. (CONN) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.