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Looking for momentum ideas?

One important momentum indicator is the “golden cross” signal, in which a stock’s 50-day moving average crosses above its 200-day moving average. It signals recent technical momentum that may push the stock higher.

Using this indicator, we screened for stocks exhibiting momentum that also have strong sources of return on equity (ROE) profitability, as indicated by DuPont analysis.

ROE can be broken up into three components such that increases in ROE can be attributed to those components.

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

‪Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month.

(Click chart for more detail)

Do you think these stocks will keep moving higher? Use this list as a starting-off point for your own analysis.

List sorted by change in ROE.

1. Synergetics USA, Inc. (NASDAQ:SURG): Engages in the design, manufacture, and marketing of microsurgical instruments and consumables primarily for ophthalmology and neurosurgery markets in the United States and internationally. Market cap of $173.54M. SMA50 at $5.54 vs. SMA200 at $5.40 (current price at $6.70). MRQ Net Profit Margin increased to 12.91% from 7.66% year-over-year, Sales/Assets increased to 0.19 from 0.18, while Assets/Equity decreased to 1.61 from 1.65. The stock has had a couple of great days, gaining 10.67% over the last week.

2. One Liberty Properties Inc. (NYSE:OLP): Engages in the acquisition, ownership, and management of commercial real estate properties in the United States. Market cap of $240.53M. SMA50 at $15.09 vs. SMA200 at $14.86 (current price at $16.47). MRQ Net Profit Margin increased to 45.73% from 23.26% year-over-year, Sales/Assets increased to 0.03 from 0.02, while Assets/Equity decreased to 1.99 from 2.36. This is a risky stock that is significantly more volatile than the overall market (beta = 2.02). The stock has had a couple of great days, gaining 6.89% over the last week.

3. Standard Motor Products Inc. (NYSE:SMP): Distributes replacement parts for motor vehicles in the automotive aftermarket industry primarily in the United States, Canada, and Latin America. Market cap of $362.35M. SMA50 at $13.43 vs. SMA200 at $13.38 (current price at $15.80). MRQ Net Profit Margin increased to 5.47% from 3.33% year-over-year, Sales/Assets increased to 0.45 from 0.42, while Assets/Equity decreased to 2.30 from 2.73. This is a risky stock that is significantly more volatile than the overall market (beta = 2.28). The stock has had a good month, gaining 16.57%.

4. NextEra Energy, Inc. (NYSE:NEE): Engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. Market cap of $24.39B. SMA50 at $54.74 vs. SMA200 at $54.63 (current price at $57.04). MRQ Net Profit Margin increased to 14.64% from 11.61% year-over-year, Sales/Assets increased to 0.0726 from 0.0701, while Assets/Equity decreased to 3.66 from 3.79. The stock has had a couple of great days, gaining 5.57% over the last week.

5. Omnicell Inc. (NASDAQ:OMCL): Offers automated solutions for hospital medication dispensing and supply management primarily in the United States and Canada. Market cap of $557.41M. SMA50 at $14.88 vs. SMA200 at $14.79 (current price at $15.16). MRQ Net Profit Margin increased to 4.25% from 3.60% year-over-year, Sales/Assets increased to 0.17 from 0.16, while Assets/Equity decreased to 1.29 from 1.30. The stock is a short squeeze candidate, with a short float at 6.06% (equivalent to 9.01 days of average volume). The stock has had a couple of great days, gaining 11.98% over the last week.

6. Nordstrom Inc. (NYSE:JWN): A fashion specialty retailer that offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. Market cap of $11.09B. SMA50 at $46.35 vs. SMA200 at $45.33 (current price at $51.17). MRQ Net Profit Margin increased to 6.23% from 5.81% year-over-year, Sales/Assets increased to 0.36 from 0.34, while Assets/Equity decreased to 3.86 from 4.03. The stock has had a good month, gaining 10.12%.

7. HMS Holdings Corp. (NASDAQ:HMSY): Provides cost containment, coordination of benefits, and program integrity services. Market cap of $2.30B. SMA50 at $25.22 vs. SMA200 at $25.11 (current price at $23.60). MRQ Net Profit Margin increased to 13.90% from 12.88% year-over-year, Sales/Assets increased to 0.2317 from 0.2307, while Assets/Equity decreased to 1.11 from 1.15. The stock is a short squeeze candidate, with a short float at 7.28% (equivalent to 10.09 days of average volume). The stock has gained 37.23% over the last year.

8. Jos. A Bank Clothiers Inc. (NASDAQ:JOSB): Design, retails, and direct-markets men's tailored and casual clothing and accessories. Market cap of $1.54B. SMA50 at $48.95 vs. SMA200 at $48.66 (current price at $54.57). MRQ Net Profit Margin increased to 8.91% from 8.75% year-over-year, Sales/Assets increased to 0.3240 from 0.3212, while Assets/Equity decreased to 1.36 from 1.38. The stock is a short squeeze candidate, with a short float at 16.84% (equivalent to 12.45 days of average volume). The stock has had a couple of great days, gaining 9.43% over the last week.

9. Rollins Inc. (NYSE:ROL): Provides pest and termite control services to residential and commercial customers in North America. Market cap of $3.44B. SMA50 at $19.58 vs. SMA200 at $19.57 (current price at $22.42). MRQ Net Profit Margin increased to 9.08% from 8.36% year-over-year, Sales/Assets increased to 0.51 from 0.50, while Assets/Equity decreased to 1.94 from 2.12. The stock has had a couple of great days, gaining 15.2% over the last week.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 9 Golden Cross Stocks With Strong Sources Of Profitability