Do you like to invest with a stock's momentum trends? For ideas on how to start your own momentum search, we ran a screen.
We began by screening the healthcare sector for stocks with strong upward momentum, trading above their 20-day, 50-day, and 200-day moving averages.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive 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)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
Do you think these companies have strong profitability? Use this list as a starting point for your own analysis.
List sorted by distance from 200-day moving average.
1. Young Innovations Inc. (YDNT): Engages in the development, manufacture, and marketing of supplies and equipment used by dentists, dental hygienists, dental assistants, and consumers primarily in the United States, as well as in Canada, Europe, South America, Central America, and the Pacific Rim. Market cap at $271.17M, most recent closing price at $33.86. The stock is currently trading 3.57% above its 20-day moving average, 7.81% above its 50-day MA, and 17.61% above its 200-day MA. MRQ net profit margin at 15.78% vs. 15.37% y/y. MRQ sales/assets at 0.164 vs. 0.16 y/y. MRQ assets/equity at 1.224 vs. 1.241 y/y.
2. Select Medical Holdings Corporation (SEM): Through its subsidiary, Select Medical Corporation, operates specialty hospitals and outpatient rehabilitation clinics in the United States. Market cap at $1.28B, most recent closing price at $8.86. The stock is currently trading 1.49% above its 20-day moving average, 9.15% above its 50-day MA, and 13.08% above its 200-day MA. MRQ net profit margin at 5.58% vs. 4.86% y/y. MRQ sales/assets at 0.265 vs. 0.247 y/y. MRQ assets/equity at 3.342 vs. 3.434 y/y.
3. Exactech Inc. (EXAC): Develops, manufactures, markets, distributes, and sells orthopedic implant devices and related surgical instrumentation, as well as offers biologic services to hospitals and physicians in the United States and internationally. Market cap at $218.49M, most recent closing price at $16.79. The stock is currently trading 1.91% above its 20-day moving average, 1.96% above its 50-day MA, and 6.16% above its 200-day MA. MRQ net profit margin at 5.61% vs. 5.56% y/y. MRQ sales/assets at 0.242 vs. 0.228 y/y. MRQ assets/equity at 1.514 vs. 1.546 y/y.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.