Momentum investing is a strategy that goes against the traditional Wall Street wisdom of ‘buy low and sell high.’ Momentum investors believe in capitalizing on the rapid growth of trending stocks, aiming to ‘buy high and sell higher.’ However, identifying the ideal entry point for these stocks can be tricky, as they often lose momentum once their valuation outpaces their future growth potential. This can leave investors with expensive shares offering limited upside or even downside risk.
A safer approach to momentum investing could be focusing on bargain stocks with recent price momentum. This is where the Zacks Momentum Style Score, which assesses trends in stock prices and earnings, and the ‘Fast-Paced Momentum at a Bargain’ screen come into play. These tools help identify stocks that are both moving quickly and attractively priced.
Cerence (CRNC), an automotive artificial intelligence developer, is a prime example of a stock that has passed this test. Here’s why it’s a compelling investment:
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Recent Price Momentum:
CRNC has shown a 4.9% increase in price over the past four weeks, demonstrating growing investor interest.*
Sustained Growth:
While short-term price spikes can occur in any stock, true momentum players consistently deliver positive returns over longer periods. CRNC has gained 0.6% over the past 12 weeks, indicating sustained momentum.*
Fast-Paced Momentum:
CRNC exhibits a beta of 2.36, implying that its price moves 136% more than the market in either direction. This fast-paced momentum is reflected in its Momentum Score of ‘B’, indicating a high probability of success for investors entering the stock now.*
Upward Earnings Revisions:
In addition to favorable momentum, CRNC has earned a Zacks Rank #2 (Buy), supported by upward trends in earnings estimate revisions. Our research shows that the momentum effect is particularly strong among Zacks Rank #1 and #2 stocks, as increased analyst confidence attracts more investors, driving prices higher.*
Reasonable Valuation:
Despite its fast-paced momentum, CRNC is trading at a reasonable valuation. With a Price-to-Sales ratio of 0.40, investors are paying only 40 cents for each dollar of sales. This suggests that CRNC has significant room for growth, further justifying its momentum appeal.Cerence’s strong price momentum, sustained growth, reasonable valuation, and positive earnings revisions make it a compelling investment opportunity for those seeking to capitalize on fast-paced momentum in the market.
