A High-Ranked Momentum Stock Portfolio

Since we have already examined in previous posts the potential for momentum strategies either using moving averages, 52 week or all-time highs (for more posts on those strategies click here or here), or returns over the past year, I thought the readership of the Scott's Investments blog may prefer a twist. I have partnered with Zacks Investment Research to start providing some additional screens to my readers. So, using the stock screener in Zacks Premium service, I've screened for stocks trading within 5% of their 52 week high (in other words, strong momentum) and also having positive earnings surprises the past two quarters, and also having the highest rating from Zacks, a 1. (Zacks ranks stocks on a scale of 1-5, with 1 being a 'strong buy' and 5 being 'strong sell'; the Zacks #1 Rank List has generated an annual average return of 27% since 1988.)

One idea I had was to only purchase the top rated stocks if the underlying index (S&P 500) was trading above a long term moving average such as the 200 day moving average. This could potentially reduce some upside gains, but could also reduce drawdowns, such as happened in 2008.

My screen results are below. There are a lot of results, primarily because the market as a whole is trading on strong momentum; I would expect in future months this list may shrink. The average investor would not need to hold 45 stocks, but it may be possible to dwindle this list by adding additional search criteria and/or simply picking a small basket of stocks from within the list. In addition, one could overweight stocks in sectors that have the strongest momentum, or only purchase stocks in the strongest sectors (such as the list compiled here, which I update monthly).

Company Name	Ticker	Zacks Rank	Last EPS Surprise (%)	Current Price	Price as % of 52-Wk High	Previous EPS Surprise (%)
CARDTRONICS INC	CATM	1	240	8.05	95.37	350
COCA-COLA ENTRP	CCE	1	31.37	20.9	100	300
EXPEDIA INC	EXPE	1	25.93	22.77	99.35	33.33
SOURCEFIRE INC	FIRE	1	200	19.35	95.5	42.86
FIRST LONG IS	FLIC	1	146.34	29.5	99.91	35
GYMBOREE CORP	GYMB	1	7.89	45.14	98.6	4.23
CENTRAL GARDEN	CENT	1	51.72	13.03	96.94	51.61
CLEARWATER PAPR	CLW	1	83.13	47.59	98.79	240
CORE-MARK HLDG	CORE	1	80.95	29.43	98.06	52.94
COMP SCIENCE	CSC	1	45.1	49.76	99.5	3.4
COGNIZANT TECH	CTSH	1	27.03	35.44	97.6	2.7
DELUXE CORP	DLX	1	3.64	17.25	98.27	47.37
DR PEPPER SNAPL	DPS	1	24	26.86	95.25	23.33
EMERGENCY MEDIC	EMS	1	28.85	46.16	100	14.29
EVERCORE PARTNR	EVR	1	100	25.3	100	400
PRICELINE.COM	PCLN	1	11.73	156.36	97.55	17.81
PATNI COMPUTER	PTI	1	60.71	17.41	99.65	21.05
PERFECT WORLD	PWRD	1	27.87	38.73	95.77	23.4
ROCK-TENN CO	RKT	1	61.8	51.58	100	3.03
ROSS STORES	ROST	1	N/A	46.67	97.46	N/A
STANDARD MOTOR	SMP	1	92.86	12.9	100	16.67
SXC HEALTH SOL	SXCI	1	152.38	43.7	100	123.53
TREEHOUSE FOODS	THS	1	38.89	37.8	96.93	13.89
TRANSMONT'N PTNRS	TLP	1	31.11	27.18	100	14.63
WORLD FUEL SVCS	INT	1	25.64	46.16	95.5	16.46
IMPAX LABORATRS	IPXL	1	66.67	7.77	100	171.43
JO-ANN STORES A	JAS	1	66.67	27.84	95.22	172.73
JOHN BEAN TECH	JBT	1	54.17	17.65	95.24	46.15
J CREW GROUP	JCG	1	209.09	32.76	100	25.93
J&J SNACK FOODS	JJSF	1	23.08	44.22	100	56
LIFE TECHNOLOGS	LIFE	1	19.7	45.45	96.36	19.64
STARLIMS TECH	LIMS	1	233.33	8.7999	97.72	300
LENDER PROC DVC	LPS	1	23.88	35.3	100	4.92
LUBRIZOL CORP	LZ	1	N/A	62.49	100	N/A
NEWMARKET CORP	NEU	1	57.23	84.65	98.24	70.91
INERGY HLDGS LP	NRGP	1	100	44.34	95.84	43.06
NBTY INC	NTY	1	78	37.1	97.86	12.12
NVR INC	NVR	1	67.24	690.95	100	30.74
WESTERN DIGITAL	WDC	1	181.48	34.81	100	172.73
WRIGHT EXPRESS	WXS	1	42.5	30.6	99.96	61.54
TNS INC	TNS	1	27.27	27.16	97.98	70.59
TRIQUINT SEMI	TQNT	1	500	7.24	97.37	9.09
TUPPERWARE BRND	TUP	1	40.98	37.4	98.57	32.35
UNIVL FST PRODS	UFPI	1	93.02	43.79	95.63	71.43
VALSPAR CORP	VAL	1	26.42	27	98.13	2.86

Comments

[Anonymous 2:]

I'd be inerested in seeing similar screens applied to the various sector ETFs.
If buying individual stock, suggest to do so only if and when the 7 (below) momentum indicators APPLIED TO THE SECTOR ETF were ALSO positive would probably help in terms of averaging into or out of positions;
Bullish indicators:
1. stock/ETF price up
2. 50 day up
3. Stock/ETF Price above 50 day
4. 200 day up
5. Stock/ETF price above 200 day
6. 50 day > 200 day
7. stock/ETF price within 5% of 52 day high
Bearish indicators= If opposite (Down or below)
Action:
one or two of any of indicators = initiate;
3, 4, 5 indicators = accumulate;
6 or 7 indicators complete weighting of position.
Begin to liquidate from position as the indicators reverse
This system would be "guaranteed" to NEVER get one in at the bottom and get one out at the top.
But likewise, it would help one stay in the position for the major portion of any intermediate/long term move.

Aug 29 10:51 AM

[TCK:]

Good luck to anyone wanting to roll the dice.

However, many are highly volatile and trade less than 100,000 shares per day with big gaps in price. Also, many do not trade options consequently your stop orders may not get filled.

Aug 31 06:33 AM