Momentum trading, often likened to the ‘greater fools theory’, is more than just buying high and selling higher. It involves identifying stocks with a strong upward trend, supported by factors that suggest this trend is likely to continue. This article highlights three such momentum trades, each exhibiting a combination of fundamental strength, growth potential, analyst support, and upcoming catalysts.
Meta Platforms: A Resurgence in Growth
Meta Platforms has been a hot momentum trade for the past two years. The stock reached its low point in 2023 but rebounded significantly, fueled by the company’s ‘year of efficiency’ and AI-driven improvements in user engagement, ad display, and revenue per ad. This has resulted in a resurgence of growth, with high double-digit growth expected to continue in 2024 and 2025. The consensus estimates for 2025 are likely conservative, suggesting a potential tailwind for the market in the form of outperformance and analyst upgrades. Meta Platforms has climbed to the top spot on MarketBeat’s list of Most Upgraded Stocks, with 35 positive revisions in the 90 days leading up to October. Analysts rate the stock as a Moderate Buy and have aggressively increased their price targets. The consensus target is near the early October highs, having climbed nearly 100% in the last 12 months and continues to rise. New coverage from Pivotal Research has placed a $780 price target on the stock, surpassing the $600 consensus figure. With most recent targets at or above the consensus, Meta Platforms is likely to continue its upward climb in the fourth quarter. The next significant catalyst for Meta Platforms is the FQ3 earnings report, due at the end of the month. While analysts have set the bar high with revisions, the consensus might underestimate reality, expecting a sequential slowdown in year-over-year growth. However, Meta Platforms has exceeded both top and bottom-line consensus forecasts for six consecutive quarters.
Palo Alto Networks: Growth, Cash Flow, and Analyst Support
Analysts’ activity in late summer propelled Palo Alto Networks (PANW) to the second position on the list of Most Upgraded Stocks. This activity includes numerous revisions and initiated coverage, assigning a Moderate Buy rating with a high probability of exceeding the consensus price target. The consensus implies fair value near current levels, but the revision trend points towards the high-end range with high conviction. More than 80% of the targets issued in the third quarter are above consensus, with most suggesting a minimum of 5% upside from the critical resistance target. Analysts are bullish due to the company’s strong results. While the announcement of a platformization plan initially dampened sentiment, subsequent results have surpassed expectations. They reveal underlying business strength and a faster-than-expected impact from the shift, which is anticipated to drive long-term growth and wider margins. The next visible catalyst is the FQ1 results, due in mid-November. Analysts are raising the bar with revisions, but consensus underestimates business strength, expecting a sequential decline in revenue and earnings.
Oracle: The New Go-To Source for Enterprise Cloud Database
Oracle’s (ORCL) multi-year shift towards cloud-based software services has taken off this year. The company has emerged as a leader in AI infrastructure and services, evidenced by a deal with Amazon. This deal will integrate Oracle’s enterprise-quality services into Amazon’s cloud, making it the leading choice among the three dominant cloud hyperscalers. The robust results in 2024 have driven an analyst upgrade cycle. This activity has propelled Oracle up the rankings, reaching the top ten in early October. The consensus target lags the market but supports the price action due to the revision trend. The consensus has increased by 35% since October 2023, and revisions lead to the high-end range above $200, representing a 15% upside for investors. The next visible catalyst is the FQ2 results, due in early December, though results from other critical AI players may also influence the market.
