High Beta, Momentum ETFs & Stocks to Trade in a Market Rally

After volatile trading, Wall Street regained momentum with three consecutive days of gains. In fact, the S&P 500 is heading toward new highs and is just 0.6% away from its peak touched in late January. Meanwhile, the Dow Jones Industrial Average is very close to exiting a correction it has been caught up in since February (read: 5 Hot Stocks in the Dow ETF Last Week).

This is especially true as the Turkey crisis, which roiled the market badly early last week, seems to be waning and hopes of renewed trade talks between the United States and China after months of tit-for-tat tariff announcements boosted sentiments. A pair of billion-dollar deals — PepsiCo’s PEP purchase of SodaStream International SODA for $3.2 billion and Tyson Foods’ TSN purchase of Keystone Foods for $2.16 billion — also instilled confidence in economic expansion.

Per the latest Bank of America Merrill Lynch survey, professional investors have the biggest portfolio weighting to U.S. stocks in their portfolio since early 2015. Allocation to U.S. stocks jumped 10 percentage points this month to a net 19% overweight, the highest since January 2015. Surging corporate profits and an improving economy buoyed by historic tax cuts, rising wages, record unemployment, increased consumer confidence and higher consumer spending are acting as major catalysts for the stock market. A combination of all these factors are expected to provide lift to the stocks (read: Dow Springs Back: More Upside for ETFs?).

While the rally seems to be broad-based, a few corners are expected to outperform in the current bullish fundamentals and are intriguing choices for a short spell. Notably, high beta and high momentum products are expected to lead the market. This is because high beta funds experience larger gains than the broader market counterparts in a bullish market. On the other hand, momentum investing looks to capture profits from buying hot stocks, which have shown an uptrend over a few weeks or a few months.

ETFs to Buy

Invesco S&P 500 High Beta ETF SPHB

This ETF tracks the performance of 106 stocks from the S&P 500 Index with the highest beta over the past 12 months. It is widely spread out across each security as none of them holds more than 1.4% of total assets. About one-third of the portfolio is allotted to information technology while financials and industrials round off the next two with double-digit allocation. It has amassed $167 million in its asset base and charges 0.25% in expense ratio. The ETF trades in average daily volume of 209,000 shares and has gained 0.5% in a week.

iShares Edge MSCI USA Momentum Factor ETF MTUM

This ETF provides exposure to large and mid-cap stocks that exhibit relatively a higher price momentum by tracking the MSCI USA Momentum Index. Holding 124 stocks, it is pretty well spread out across components with none holding more than 5.8% of the assets. The ETF is skewed toward the information technology sector at 40.9% while consumer discretionary, financials, and industrials round off the next three positions. It has accumulated $9.6 billion in its asset base while trading in solid volume of about 980,000 shares a day. It charges 15 bps in fees per year and has gained 0.7% in a week (read: U.S. Momentum ETF Hits New 52-Week High).

Invesco DWA Momentum ETF PDP

This fund tracks the Dorsey Wright Technical Leaders Index, which measures the performance of companies that demonstrate powerful relative strength characteristics. It holds 100 securities in its basket with none accounting for more than 3.5% share. Here again, information technology takes the top spot at 28.9% while consumer discretionary and industrials round off the next two. The product has amassed $1.6 billion in its asset base while charging 63 bps in annual fees. It trades in a good volume of 94,000 shares a day on average and has risen 1.3% in a week.

SPDR Russell 1000 Momentum Focus ETF ONEO

With AUM of $635.4 million, this product targets large cap securities with a combination of core factors (high value, high quality, and low size characteristics), with focus on high momentum characteristics. It follows the Russell 1000 Momentum Focused Factor Index and holds well-diversified 896 stocks in its basket with each making up for no more than 1.5% of assets. The ETF charges an annual fee of 20 bps and trades in a paltry average daily volume of 18,000 shares. It has gained 1.3% in a week.

Stocks to Buy

For stocks, we have chosen the top picks using the Zacks Stock Screener to fit our criteria of a Zacks Rank #1 (Strong Buy) or 2 (Buy), Momentum Score of B or better, and beta greater than 2, Here are the four chosen stocks.

Bridgepoint Education Inc. BPI

It provides postsecondary education services and offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences. It has a market cap of $355.16 million and a beta of 2.42. The stock has added 3% in a week. Bridgepoint Education sports a Zacks Rank #1 and has a Momentum Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nektar Therapeutics NKTR

This research-based biopharmaceutical company, discovers and develops drug candidates for cancer, auto-immune disease, and chronic pain in the United States. With a market cap of $10.35 billion and beta of 2.08, the stock has risen 2.2% in a week. It has a Zacks Rank #2 and a Momentum Score of B.

Targa Resources, Inc. TRGP

This company owns, operates, acquires, and develops a portfolio of midstream energy assets in North America. With a market cap of $12.16 billion, the stock has a Zack Rank #2 and a Momentum Score of A. It has a beta of 2.02 and is up 2.3% in a week (read: MLPs on Rise: Best ETFs & Stocks Over One Month).

Rayonier Advanced Materials Inc. RYAM

It operates as a global supplier of cellulose specialties products, a natural polymer for the chemical industry. It has a market cap of $1.07 billion and a beta of 3.41. The stock has a Zacks Rank #2 and a Momentum Score of B. It has gained 4.6% in a week.

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Targa Resources, Inc. (TRGP) : Free Stock Analysis Report
 
Pepsico, Inc. (PEP) : Free Stock Analysis Report
 
Rayonier Advanced Materials Inc. (RYAM) : Free Stock Analysis Report
 
ISHRS-MSCI US M (MTUM): ETF Research Reports
 
POWERSH-SP5 HBP (SPHB): ETF Research Reports
 
SPDR-R1000 MF (ONEO): ETF Research Reports
 
PWRSH-DWA MO PO (PDP): ETF Research Reports
 
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
 
Nektar Therapeutics (NKTR) : Free Stock Analysis Report
 
SodaStream International Ltd. (SODA) : Free Stock Analysis Report
 
Bridgepoint Education, Inc. (BPI) : Free Stock Analysis Report
 
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