Momentum investing is all about capitalizing on a stock’s current trend, regardless of direction. In the ‘long’ context, this means buying high and hoping to sell even higher. The key for momentum investors is to identify and leverage these trends, as a stock that has established a particular course is likely to continue moving in that direction. This approach aims to generate timely and profitable trades by recognizing and riding the wave of a stock’s momentum. While momentum is a popular characteristic to look for in stocks, defining it can be challenging. There’s a lot of debate about which metrics are most important, but the Zacks Momentum Style Score, a part of the Zacks Style Scores, provides a helpful framework for evaluating momentum.
Let’s examine Canadian Imperial Bank (CM), a company that currently holds a Momentum Style Score of B. We’ll explore price changes and earnings estimate revisions, two key elements of the Momentum Style Score. It’s important to note that Style Scores complement the Zacks Rank, our stock rating system with a proven track record of outperformance. Canadian Imperial Bank currently boasts a Zacks Rank of #2 (Buy). Our research indicates that stocks with Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following month.
Is CM Poised to Beat the Market?
Let’s delve deeper into the factors driving CM’s momentum. Analyzing a stock’s short-term price activity is a great way to gauge its momentum, as it reflects both current interest in the stock and the relative strength of buyers and sellers. Comparing a stock to its industry can help investors identify the most promising companies within a specific sector. CM’s shares have risen 0.37% over the past week, outperforming the Zacks Banks – Foreign industry, which has gained 1.99% in the same period. Looking at the longer-term trend, CM’s monthly price change of 13.34% is significantly higher than the industry’s 1.97% performance.
While any stock can experience a price spike, consistently outperforming the market requires a truly winning company. Over the past quarter, Canadian Imperial Bank shares have surged 29.74%, and in the past year, they’ve soared 53.89%. This contrasts sharply with the S&P 500, which has only moved 4.57% and 31.09% over the same periods. Investors should also pay attention to CM’s 20-day average trading volume. Volume is a crucial factor in many analyses, and the 20-day average provides a useful baseline for price-to-volume relationships. A rising stock with above-average volume generally indicates bullish sentiment, while a declining stock with above-average volume is typically bearish. CM is currently averaging 1,548,275 shares over the past 20 days.
Earnings Outlook
The Zacks Momentum Style Score not only considers price trends but also incorporates trends in earnings estimate revisions. It’s worth noting that estimate revision trends are also a core component of the Zacks Rank. A favorable trajectory here can signal promising prospects, and we’ve seen this with CM recently. Over the past two months, 6 earnings estimates have moved higher for the full year, with no downward revisions. These revisions have boosted CM’s consensus estimate, which has increased from $5.05 to $5.36 in the past 60 days. Looking ahead to the next fiscal year, 6 estimates have moved upwards, with no downward revisions in the same period.
Bottom Line
Taking all these factors into account, CM’s Momentum Score of B and Zacks Rank of #2 (Buy) come as no surprise. If you’re seeking a fresh pick with near-term growth potential, consider adding Canadian Imperial Bank to your short list.
