Usually, I’m a buy-and-hold investor. But I do dabble in momentum investing occasionally. One key factor in momentum investing is to pick climbing stocks beloved by large investors. Investor’s Business Daily, for those who subscribe to it, has Relative Strength and other data that shows the extent to which individual stocks are outperforming the market as a whole and which large investors in particular are buying each name.
Another factor investors can use to determine whether equities are good momentum stocks to buy is whether they hold their own, even on days when the stock market is going down. A former colleague of mine said when a stock advances on a red market day, it’s a very bullish sign for that name. Based on my experience, I agree with that theory. Finally, even when buying momentum stocks, I try to avoid names trading at extremely high valuations. That’s because stocks with high valuations are more likely to plunge if bad news does surface.
Super Micro Computer (SMCI)
There’s no doubt that Super Micro Computer (NASDAQ:SMCI), which develops hardware used to create AI, has become a key beneficiary of the AI Boom and has a great deal of momentum. Indeed, the shares soared 197% over the last three months as of Feb. 13.
The stock has a maximum Relative Strength score of 99 and a maximum Accumulation/Distribution rating of A+, according to Investor’s Business Daily. Relative Strength measures a stock’s performance compared to the entire market over the last year, while Accumulation/Distribution shows the extent to which institutions have been buying a name over the last 13 weeks.
Also noteworthy is that shares were climbing 1.3% in late afternoon trading on Feb. 13, a day when 90% of the names on the New York Stock Exchange were falling, according to CNBC.
Celsius Holdings (CELH)
Celsius Holdings (NASDAQ:CELH), which makes and markets relatively healthy energy drinks, also has a great deal of momentum. Indeed, the shares advanced 20% between Jan. 31 and Feb. 13.
In the late afternoon of Feb. 13, the shares were little changed, even though 90% of the names on the NYSE were down on the day and the S&P 500 was sinking 1.9%.
The shares have a high Relative Strength rating of 86 out of 99. The stock’s Accumulation/Distribution rating of B-, which is not very high. However, more institutions could start buying the shares soon, as they realize the large extent to which they have outperformed in recent weeks.
On a positive fundamental note, on Jan. 23, investment bank Piper Sandler (NYSE:PIPR) wrote that the firm could continue to gain market share in America in the short term and overseas in the longer term.
The stock is changing hands at an elevated forward price-earnings ratio of 52 times. However, that multiple is significantly lower than the forward P/E ratios of 151 times and 99 times at which the name was trading on June 30, 2023, and December 31, 2022, respectively.
Moreover, analysts, on average, expect the company’s earnings per share to jump to 76 cents this year from a per-share loss of 88 cents in 2023. That tremendous growth actually makes the stock’s P/E ratio attractive.
Toyota (TM)
Toyota (NYSE:TM) surged nearly 18% in the last month ending Feb. 13. At a time when the Street is bearish on electric vehicles, investors appear to be impressed with TM’s approach, which emphasizes hybrid-electric autos and deemphasizes purely electric vehicles.
The shares gained momentum after the automaker reported very strong fiscal third-quarter results on Feb. 6. Specifically, its profit nearly doubled to 1.36 trillion Japanese yen (JPY) or $9 billion from 728 billion JPY in Q3 of 2023.
Also noteworthy is the firm increased its bottom-line guidance for its full fiscal year to $30 billion from $27 billion. TM cited reduced costs, marketing initiatives and positive currency fluctuations as the key reason for its guidance hike.
On the “red tape” day of Feb. 13, TM stock rose 2.3%. The shares have a very high Relative Strength rating of 93 and an excellent accumulation/Distribution grade of A, according to Investor’s Business Daily.
The stock’s forward price-earnings ratio is an attractive 12 times.
On the date of publication, Larry Ramer held a long position in SMCI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.