One of the best market conditions for active traders is when price momentum underperforms and then kicks back in with a vengeance. Given what we have experienced since July, that could be a scenario we are about to enter. The market has been putting in a grinding, sideways move and may be getting ready for a jump higher, especially if earnings start to pick up.
A new research report from Jefferies focuses on a bounce-back for momentum stocks, and it notes that when price momentum has been as bad as it has been recently, it tends to rebound in a big way. The analysts screened the firm’s research universe and found 25 stocks rated Buy that, as they put it:
Sit in the top quintile based on our one-month change in 200-day moving average of price momentum, and carry a market cap above $2 billion inside of the Russell 2500 Growth
These five look especially attractive for traders.
Advanced Micro Devices
This chip stock has been on a roll, and some on Wall Street think the company is a buyout candidate. Advanced Micro Devices Inc. (NYSE: AMD) is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and server processors and chipsets.
The company also offers microprocessors for server platforms under the AMD Opteron brand; embedded processor solutions for interactive digital signage, casino gaming and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series and G-Series brands; and semi-custom System-on-Chip products that power the Sony PlayStation 4 and Microsoft Xbox One game consoles.
The Jefferies price target for the stock is $9, and the Wall Street consensus price objective is $6.12. The stock closed Monday at $6.84 per share.
CyrusOne
This is a top pick among the data center stocks. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.
Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like CyrusOne. The company trades at numerous lower multiples than its bigger competition, and the Jefferies team feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company has also exhibited faster deployment times, rapid new market expansion and low churn among customers — all bullish reasons for buying the stock.
CyrusOne unitholders receive a 3.24% distribution. Jefferies has a $63 price target on the stock, and the consensus target is set at $60.18. The shares closed most recently at $46.95.
Jack in the Box
This is a top fast-food offering for traders to consider. Jack in the Box Inc. (NASDAQ: JACK) has sold off almost 10% since the end of September, and the entry point here looks very solid. The company operates and franchises Jack in the Box restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.
To counter McDonald’s all-day breakfast promotion, the company recently launched its new all-day “brunchfast” menu on September 28, 2016. The menu features items such as the bacon and egg chicken sandwich, the brunch burger and the southwest scrambler plate.
Shareholders are paid a 1.24% dividend. The Jefferies price target of $112 is above the $108.23 consensus target. Shares closed most recently at $96.45.
Take-Two Interactive Software
This top video game producer has cashed in with some super-hot titles. Take-Two Interactive Software (NASDAQ: TTWO) offers its products under labels such as Rockstar Games and 2K. It develops and publishes action/adventure products under the Grand Theft Auto brand, as well as other franchises, including Civilization, Borderlands, Bioshock and Red Dead under the Rockstar Games label. The Grand Theft Auto franchise has been one of the best-selling video games ever released.
The company also reported outstanding earnings for the recent quarter, but it did push guidance lower than current levels. Top Wall Street analysts are very bullish on the next Rockstar title, as well as the fact that the company raised its 2018 fiscal year estimates.
The Jefferies target price is $48, and the consensus target is at $46.38. The stock closed trading on Monday at $43.77.
Yelp
This is a top internet play for investors looking for exposure in the sector. Yelp Inc. (NASDAQ: YELP) provides free and paid business listing services to businesses of various sizes, as well as enabling businesses to deliver targeted search advertising to large local audiences through its website and mobile app.
Yelp also provides other services, including Yelp platform, which allows consumers to transact directly on Yelp; Yelp deals that allow local business owners to create promotional discounted deals for their products and services; and gift certificates products for local business owners to sell full-price gift certificates directly to customers. The Yelp platform also enables consumers to complete food delivery transactions, book spa and salon appointments, order flowers, make winery reservations and more.
The Jefferies price target is set at $42. The consensus posted target is much lower at $38.63, and shares closed above that level Monday at $41.11.
These five solid companies could show some solid price momentum, especially with earnings season upon us. While they are more suited for accounts with a higher risk tolerance, they are all established companies with sizable track records.
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