In this article, we will take a look at the 10 best stocks to buy for a month. To see more such companies, go directly to 5 Best Stocks to Buy for a Month.
The momentum investing philosophy aims to leverage price movements of stocks. The key idea behind momentum investing is that price trends of stocks can persist for a certain time and investors can/should ride those trends and make the most out of them. If a stock is showing signs of going up, buy that stock and ride the upward price trend and sell it as soon as it shows signs of peaking. That’s momentum investing in simple terms and it sure looks straightforward and easy on paper. But does research provides any backing to this investment philosophy? Let’s find out.
Several research papers have shown stock momentum does play a key role in stock movements. These research papers show that stock prices do not follow random paths. Instead, their past movements and trends can help investors predict and foresee their future trends to some extent. In a paper titled The 52-Week High and Momentum Investing, Thomas George and Chuan-Yang Hwang quote research from Jegadeesh and Titman (1993) which says that stock returns show “momentum behavior at intermediate horizons.” The paper also says that a strategy that buys the top 10% and sells the bottom 10% of stocks ranked by returns during the past 6 months, and holds the positions for 6 months, produces profits of 1% per month. The paper also quotes research from Moskowitz and Grinblatt (1999) which says that momentum in individual stock returns is driven by momentum in industry returns.
The paper then shows the importance of 52-week highs and lows in investing and how different biases come into play in investors’ thought process when a stock hits 52-week high or low. The paper says:
“Our results indicate that the 52-week measure has predictive power whether or not individual stocks have had extreme past returns. This suggests that price level is important, and is consistent with an anchor-and-adjust bias. Traders appear to use the 52-week high as a reference point against which they evaluate the potential impact of news. When good news has pushed a stock’s price near or to a new 52-week high, traders are reluctant to bid the price of the stock higher even if the information warrants it. The information eventually prevails and the price moves up, resulting in a continuation. Similarly, when bad news pushes a stock’s price far from its 52-week high, traders are initially unwilling to sell the stock at prices that are as low as the information implies. The information eventually prevails and the price falls.”
Another famous research backs the claims on effectiveness of momentum investor. According to data from University of Chicago finance professor (and Nobel laureate) Eugene Fama and Dartmouth College finance professor Kenneth French, since 1927, a portfolio holding 10% of stocks with the best trailing 12-month returns would have beaten the broader market by 6.7 annualized percentage points.
AQR Capital in 2009 published a detailed research paper on momentum investing titled “The Case for Momentum Investing.” The paper summarized various studies and researches that point to the effectiveness of momentum investing. For example, the paper demonstrates average annual returns for portfolios grouped by momentum for a period starting from January 1927 to December 2008. The data shows that stocks with the best momentum easily outperform the stocks with the worst momentum, both in absolute terms and relative to the equity market as a whole.
The AQR research paper also highlights an important psychological factor that plays a key role in the success of momentum investing. Whenever a stock rises based on good news, the average investor tends to sell the stock to lock the gains. On the other hand when a company announces bad news, the average investor would hold on to the stock instead of quickly selling it in hopes of breaking even. This psychological factor is directly linked to momentum investing. The paper says:
“Investors (as human beings) are prone to what behavioral economists and experimental psychologists call the disposition effect. Investors tend to sell winning investments prematurely to lock in gains, and hold on to losing investments too long in the hope of breaking even. The disposition effect creates an artificial headwind: when good news is announced, the price of an asset does not immediately rise to its value because of premature selling. Similarly, when bad news is announced, the price falls less because investors are reluctant to sell.”
Tobias J. Moskowitz, PhD, in his paper titled Momentum Investing: Finally Accessible for Individual Investors, shares some data which compares the performance of long-only momentum portfolio to other long-only stock investing strategy during a 30-year period starting from December 1979 to December 2009. The analysis shows that momentum investing outperformed the market or a core index portfolio by a wide margin. For large-cap stocks, momentum outperformed the Russell 1000 by about 2 percent a year. A small-cap momentum index outperformed the Russell 2000 by 3.7 percent a year. In addition, momentum outperformed value by 1.5 percent a year and growth by more than 3 percent a year.
Our Methodology
For this article, we scanned the holdings of iShares MSCI USA Momentum Factor ETF (MTUM) and picked 10 stocks with the highest number of hedge fund investors. MTUM seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. For each stock we have mentioned its latest stock movements and its growth catalysts that are expected to sustain their upward stock momentum.
10 Best Stocks to Buy for a Month
10. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 59
General Electric Company (NYSE:GE) shares were up about 1.24% over the past 5 days through June 28.
Insider Monkey’s database of 943 hedge funds shows that 59 hedge funds tracked by Insider Monkey had stakes in General Electric Company (NYSE:GE) as of the end of the first quarter of 2023. The biggest stakeholder of General Electric Company (NYSE:GE) during this period was Chris Hohn’s TCI Fund Management which owns a $2.5 billion stake in the company.
Barclays Capital recently said in a note that investors are not recognizing General Electric Company (NYSE:GE)’s energy business’s growth potential. Barclays’ Julian Mitchell said there’s an ‘undiscovered’ value at General Electric’s Vernova segment.
Earlier in June, General Electric Company (NYSE:GE) Aerospace won a maximum $422.81 million firm-fixed price, requirements-type contract from Defense Logistics Agency for supplies related to the F-series engines (F101/110/118).
9. Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Holders: 67
Oracle Corporation (NASDAQ:ORCL) shares have gained about 12% over the past 30 days through June 27. Oracle Corporation (NASDAQ:ORCL) is upping its AI game at different fronts. Oracle Corporation (NASDAQ:ORCL) recently said it partnered with enterprise AI platform Cohere to provide generative AI services to help organizations automate end-to-end business processes.
Goldman Sachs recently upgraded the stock to Neutral from Sell after the company’s strong Q4 results. Oracle Corporation (NASDAQ:ORCL) also received upgrades from Citi, BofA, Barclays and Stifel.
A total of 67 hedge funds tracked by Insider Monkey were long Oracle Corporation (NASDAQ:ORCL) as of the end of the first quarter of 2023.
Ariel Focus Fund made the following comment about Oracle Corporation (NYSE:ORCL) in its Q1 2023 investor letter:
“Additionally, global leader in enterprise software, Oracle Corporation (NYSE:ORCL) traded higher in the quarter, driven by solid quarterly earnings, a material increase in the dividend as well as forward looking guidance that implies a substantial acceleration in organic cloud growth for full year 2023. We believe these results highlight ORCL’s ability to effectively cross-sell and upsell apps and infrastructure, as well as the emergence of the company’s cloud platform as a competitive offering.”
8. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 72
Eli Lilly and Company (NYSE:LLY) shares have gained about 8% over the past 30 days as of June 27. Eli Lilly and Company (NYSE:LLY) is making headlines due to its weight loss drug retatrutide. Eli Lilly and Company (NYSE:LLY) recently said that patients in Phase 2 clinical trial for retatrutide saw a mean weight reduction of up to roughly 58 pounds, or 24% of their body weight, after 48 weeks.
As of the end of the first quarter of 2023, 72 hedge funds tracked by Insider Monkey had stakes in Eli Lilly and Company (NYSE:LLY). The biggest stakeholder of Eli Lilly and Company (NYSE:LLY) during this period was Rajiv Jain’s GQG Partners which owns a $1 billion stake in the company.
7. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 72
As of June 28 Broadcom Inc. (NASDAQ:AVGO) shares have gained about 5% in the past 30 days. On June 1 Broadcom Inc. (NASDAQ:AVGO) posted fiscal second quarter results that were better than expected. Broadcom Inc. (NASDAQ:AVGO)’s adjusted EPS in the period came in at $10.32, beating estimates by $0.18. Revenue in the quarter jumped 7.8% year over year to reach $8.73 billion, beating estimates by $20 million.
As of the end of the first quarter of 2023, 72 hedge funds tracked by Insider Monkey had stakes in Broadcom Inc. (NASDAQ:AVGO).
6. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 73
As of June 27, Exxon Mobil Corporation (NYSE:XOM) shares had gained about 1.92% over the past 5 days. Exxon Mobil Corporation (NYSE:XOM) is slowly picking up momentum even though it has slipped about 1.84% year to date amid volatility in oil prices and recession worries. Exxon Mobil Corporation (NYSE:XOM) is one of the best stocks to buy for a month or a year since the company pays solid and regular dividends and it has long-term growth catalysts. Some analysts believe natural gas to be a strong growth catalyst for Exxon Mobil Corporation (NYSE:XOM) as gas demand and prices are expected to increase in the future.
As of the end of the first quarter of 2023, 73 hedge funds tracked by Insider Monkey had stakes in Exxon Mobil Corporation (NYSE:XOM). The biggest stakeholder of Exxon Mobil Corporation (NYSE:XOM) during this period was Rajiv Jain’s GQG Partners which owns a $2.15 billion stake in the company.
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Disclosure: None. 10 Best Stocks to Buy for a Month is originally published on Insider Monkey.
