What are we looking for?
U.S.-listed large-cap stocks showing price momentum across multiple time frames.
We have seen some weakness in U.S. indexes over the past five days with the Nasdaq Composite Index declining more than 4 per cent and the S&P 500 down 1.3 per cent. The Dow Jones Industrial Average is struggling to stay above water with a gain of just 0.7 per cent. Does “sell in May and go away” still hold any value? Looking at the past five years of data in the major U.S. indexes, selling in May would have yielded poor results as none of the major indexes posted a negative month between May 1 and Aug. 31. Therefore we will continue to look for stocks that are showing upside momentum.
The screen
We will be using Trading Central Strategy Builder to search for U.S.-listed large cap stocks demonstrating strong upward price momentum across multiple time horizons.
We will start by screening for stocks with a market capitalization of at least US$30-billion. This will limit our search to the largest and most stable companies in the market with correspondingly higher quality revenue and earning streams.
Next, we will search for stocks demonstrating price momentum across multiple time horizons. Thirteen-week price performance must be above 10 per cent, year-to-date performance better than 20 per cent, and a minimum return of 30 per cent over the past 52 weeks.
Finally, to find stocks that continue to indicate upside momentum, we include only stocks trading within 10 per cent of their 52-week highs.
For informational purposes, we have also included the recent stock price, price-to-earnings ratio and dividend yield.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Performance ranking is based on an average of all selection criteria. Of the 15 stocks that made our list, the top seven are financial stocks (three of them Canadian banks), strongly indicating positive momentum in that sector. Industrials and consumer cyclicals largely round out the rankings.
Topping our list is Bank of Montreal, which has a dual exchange listing in Canada and the United States. The stock price continues to make new record highs with an impressive 13-week price performance of 24.9 per cent and one-year performance of 95.9 per cent. Dual-listed Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are also highly ranked with year-to-date performances similar to BMO, and one-year figures of 70.6 per cent and 79.5 per cent, respectively.
Copper miner Freeport-McMoRan Inc. has the best 52-week return on our list at an astonishing 356.6 per cent. The stock price just broke above its February high and shows no reversal signs yet, which is unsurprising with copper currently testing record high prices not seen since 2011.
The U.S. industrial sector continues to shine with four familiar names making the list: Deere & Co., General Dynamics Corp., Caterpillar Inc. and United Parcel Service Inc. Consumer cyclicals also have a presence (home builders Lennar Corp., D.R. Horton Inc. and retailer Lowe’s Cos. Inc.).
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 17.7-per-cent annualized total return compared with 15.2 per cent for the S&P 500 index on the same basis.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
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Gary Christie