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Small-cap stocks are often seen as the speedy cheetahs of the stock market, while large- and mega-caps are like lumbering elephants. While there is some truth that size matters when averaging returns across broad classifications of publicly-traded stocks (see Fama and French), elephants with big ears can also fly.

One potentially profiable trading method we will consider will use momentum of the large- and mega-caps (Jegadeesh and Titman, 2001). Stocks that performed the best in the market over a three-to-12-month period had a tendency to outperform the market in the following three-to-12-month period.

Our initial screen will consider large- and mega-caps that vastly outperformed the market; we will filter down the results based on some financial ratios and forecasts.

Relative Strength of Big Stocks

The six-month performance of the market as tracked by the SPY is roughly +24%. We want our big stocks to be some of the very best performers, so we will screen out any stock with less than a 50% increase during the past six months. This leaves us with 85 stocks.

Next, we filter based on EPS growth of at least 20% this year and next year. This immediately filters our results down to 26 stocks. (You might also like to read about 3 Large and Growing Stocks With High Valuations)

Ticker

Company

NVDA

NVIDIA Corporation

BHI

Baker Hughes Incorporated

CXO

Concho Resources, Inc.

ALU

Alcatel-Lucent

PXD

Pioneer Natural Resources Co.

CBS

CBS Corporation

SLB

Schlumberger Limited

BX

The Blackstone Group

APC

Anadarko Petroleum Corporation

CLR

Continental Resources Inc.

CNH

CNH Global NV

NFLX

Netflix, Inc.

MU

Micron Technology Inc.

AA

Alcoa, Inc.

LVS

Las Vegas Sands Corp.

JNPR

Juniper Networks, Inc.

CAT

Caterpillar Inc.

WY

Weyerhaeuser Co.

BTU

Peabody Energy Corp.

BIDU

Baidu, Inc.

DOW

The Dow Chemical Company

JCI

Johnson Controls Inc.

PWE

Penn West Energy Trust

REP

Repsol YPF SA

DVN

Devon Energy Corporation

VIV

Vivo Participacoes S.A.

NVDA is a Large Cap Momentum Stock Pick (Chart Compliments of Stockcharts.com)














PEG and PEGY Ratios

Some use PEG ratios to determine if a stock is fairly valued, compared to future growth prospects. If the stock pays dividends, the PEGY ratio is used, which simply adds yield to growth percent. Below are the five stocks with a PEG or PEGY ratio of less than 1.

Ticker

P/E

PEG

EPS growth next 5 years

Dividend Yield

PEGY

REP

14.77

0.42

0.35

0.04

0.38

MU

6.43

0.55

0.12

0.55

VIV

19.17

0.58

0.33

0.03

0.53

BTU

22.67

0.98

0.23

0.01

0.96

WY

6.39

1.2

0.05

0.02

0.82

Forecast Upgrades

Another strategy is to buy shortly after earnings forecasts have been upgraded. Jegadeesh and Titman pointed out in their paper Momentum that earnings momentum is closely linked to price momentum. Perhaps the immediate price jump with an earnings forecast upgrade is met with under-reaction leading to a longer period of price momentum. (You might also be interested in learning how analyst upgrades affect prices in Lower Risk and Higher Reward? Six Picks That Ignore Beta)

The five stocks that Zacks filtered out as having a forecast upgrade in the past month are ALU, BHI, MT, NFLX, and NVDA.

Price to Sales

Some value investors prefer stocks with Price to Sales under 1.

Ticker

P/S

ALU

0.51

REP

0.61

CNH

0.72

JCI

0.78

DOW

0.79

AA

0.84

Dividend Investors

Lastly, we do not want to exclude our dividend investors. None of these stocks are particularly high-yielding, but neither would we expect this to be the norm with high momentum stocks looking for growth.

Ticker

Dividend Yield

PWE

3.78%

REP

3.71%

VIV

2.92%

WY

2.48%

BX

2.25%

What is Your Take?

What is your slant on these stocks? Are you into large- or mega-cap stocks? If so, which of these momentum picks are on the top of your stock list? I’d love to hear your comments on which stocks meet your trading criteria.

Source: 19 Large- and Mega-Cap Momentum Stocks