Insight & action

Shifting Momentum for Growth Stocks

Preparing for a new month tomorrow with new ideas today.

Sterne Agee technical strategist Carter Worth writes about opportunities created by long-term momentum stocks, which have recently seen above average selling pressure. He argues the current deceleration from last year's +29 percent pace has prompted nervous investors to book profits, especially on stocks which have produced out-sized returns.

To quote, "People invariably react to unusual strength by taking profits, believing the odds are low a stock will continue to advance. Selling abates down 15-30 percent ... more often than not at an upward moving average."

He cites Netflix Inc. (NFLX) as an example. The stock has appreciated 215 percent during the past two years, more than ten times the return of the S&P 500 Index. Recently however, investors have sent the stock down 21 percent to its support line, even as analysts forecast earnings growth this year of 116 percent.

Worth identifies several additional companies whose action mirrors that of Netflix: Comcast Corporation (CMCSA), Salesforce.com, Inc. (CRM) and Tiffany & Co. (TIF). His observation has prompted us to create a list of our own. So we screened for strong two-year stock gains, coupled with recent selling pressure and above-average growth prospects this year.

Our screen produced 22 buy candidates. On-air we shared the 10 whose stocks have fallen the most over the past month. We include the entire list for the benefit of blog readers.

Actavis PLC (ACT), Alliance Data Systems Corporation (ADS), Biogen Idec Inc. (BIIB), Cabot Corporation (CBT), Computer Sciences Corporation (CSC), EQT Corporation (EQT), Expedia, Inc. (EXPE), Flowserve Corporation (FLS), Forest Laboratories, Inc. (FRX), Gilead Sciences, Inc. (GILD), the Goodyear Tire & Rubber Company (GT), Keurig Green Mountain Inc. (GMCR), McKesson Corporation (MCK), Michael Kors Holdings Limited (KORS), Micron Technology, Inc. (MU), Mohawk Industries (MHK), Mylanc Inc (MYL), Netflix Inc., PPG Industries, Inc. (PPG), Regeneron Pharmaceuticals, Inc. (REGN), Thermo Fisher Scientific, Inc. (TMO) and TripAdvisor Inc. (TRIP).

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