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Six stocks with electric share price momentum
Renewed momentum in the stock market saw the FTSE 100 index break through the 7,000 mark in mid-December after another bout of sterling weakness.
An investing strategy based on momentum has a pleasing simplicity to it. You simply buy what is going up and keep buying it.
The bad news: a stock’s momentum is only likely to be maintained if there are material catalysts to drive the price.
Some market participants seek to identify momentum through technical analysis. This involves looking at charts to establish supply and demand in the market for a particular stock in the hope of determining its future trajectory.
Although the FTSE is within touching distance of its record high, investors have been forced to endure considerable volatility in 2016. The shock Brexit vote in June was bookended by the Chinese currency crisis in January and Donald Trump’s surprise election win in November.
Against this backdrop, we have identified a list of FTSE 350 stocks which have shown consistent momentum throughout the year – up 10% or more over the past one, three, six, nine and 12 months. They must have passed our 10% hurdle on every occasion and not simply a few of the time periods.
We tightened our momentum screen further to include two-year and three-year share price performance at the same threshold. Six names made the cut. Which have the chops to keep on rising?
Three miners are included but it is noteworthy that our time horizon does not fully capture a commodities downturn which began earlier than 2013. Of the trio, we like Kazakhstan copper producer KAZ Minerals (KAZ) best as we remain bullish on the prospects for the industrial metal.
Steel-to-mining giant Evraz (EVR) has benefited recently from the surge in the coking coal price. It is the largest coking coal producer in Russia. Interestingly it also claims to be the number one producer of rails and large diameter pipes in North America. It could therefore potentially benefit from Donald Trump’s infrastructure spending plans.
Construction equipment rental firm Ashtead’s (AHT) bias towards the US has already driven the shares to record highs as investors price in a boost from Trump’s pledged $500bn infrastructure spend.
There is scope for the company to capture share in a fragmented US market but if Trump fails to deliver then the £8bn market cap could be vulnerable to a sell-off.
Vedanta Resources (VED) has enjoyed resurgence in the price of oil, iron ore, copper and zinc, together with strong free cash flow helping to deleverage its balance sheet.
Sadly it missed out on the full benefit of the zinc rally – up 75% this year – as it had cut production of the metal by nearly 40% in the first half of its financial year. It expects zinc production to be significantly higher in the second half of its financial year.
Electronic parts distributor Electrocomponents (ECM) has benefited of late from a restructuring programme launched by chief executive Lindsley Ruth in November 2015.
Further cost savings and structural growth drivers such as expansion in the nascent predictive maintenance market (aimed at detecting early signs of failure in processes such as manufacturing) suggest the momentum can be maintained.
Ride the upgrades
Consistent earnings growth and an excellent record in small-scale M&A have underpinned a 141% advance in plastic packaging outfit RPC (RPC) over the last three years.
We really like the business and share Panmure Gordon’s view that the shares could trade above £15 in the next 18 to 24 months.
RPC last week announced plans to buy two businesses. One is ESE, Europe’s largest temporary waste solutions provider, for €262.5m. The other is Astrapak, a South African rigid plastic packaging manufacturer.
Analysts subsequently upgraded their earnings forecasts for RPC yet again. This is a classic momentum trade; keep buying.