Investors looking to buy shares in a stock look for signs of upward momentum and those looking to short a stock look for signs of decline.
The momentum investors looking to buy high and sell higher will ideally seek a low P/E ratio, indicating the trend still has room to run.
Momentum investors believe an established trend is likely to continue in that direction until something sends it off course. Pinpointing stocks with upward momentum to buy is not easy as the markets fluctuate rapidly.
How do you know if a stock has high momentum?
Traders look at various chart indicators to help guide them to momentum-driven stock picks. Some of these include the rate of change, trading volume, and relative strength.
A rate of change (RoC) above zero can indicate upward momentum in the stock.
An increase in trading volume shows us interest in the equity is real.
The relative strength index (RSI) compares the size of recent gains to recent losses. When RSI moves higher, crossing from under 30 to above 30, it is generally considered a buy signal.
None of these should be used in isolation, but they can help predict stocks that are gaining momentum when considered together.
Here are a few stocks recently enjoying upward momentum that we have on our radar:
Pioneer Natural Resources Co (NYSE: PXD)
Pioneer Natural Resources Co (NYSE: PXD) is an American company engaged in hydrocarbon exploration. It is headquartered in Texas and operates in the Permian Basin.
Pioneer Natural Resources is ranked 341st on the Fortune 500.
PXD stock is showing significant momentum. The share price has grown 67% over the past six months, moving from $150 a share six months ago to $251 a share at the time of writing.
Looking at the P/E ratio it is only 22.1. This is in line with the rest of the market. However, the year-over-year returns show incredible growth. Earnings have grown 8.5x and cash flow has increased 3.8x.
With oil prices looking like they’ll remain elevated for some time, energy stocks like PXD are gaining momentum. Pioneer has a healthy balance sheet and the likelihood of rewarding shareholders through dividends.
There are risks to the oil sector, such as labor and equipment shortages. But general consensus among analysts rates PXD stock a buy with an overweight rating and $273 target share price.
CF Industries Holdings, Inc. (NYSE: CF)
CF Industries Holdings, Inc. (NYSE: CF) is a North American manufacturer and distributor of agricultural fertilizers, including ammonia.
Geopolitical tensions, the COVID-19 pandemic and the Russian war in Ukraine are all impacting commodity prices and shortages. This is raising interest in fertilizer stocks.
As natural gas is used to make fertilizers, the soaring energy prices are also pushing up the fertilizer prices.
CF Industries was founded in 1946 as the Central Farmers Fertilizer Company.
CF stock has been enjoying considerable momentum. The share price has grown from $50.42 six months ago to $99.63 at the time of writing. This is giving us a 97.6% gain.
The 52-week high is $102.60. CF stock is very close and therefore there’s every chance it could reverse course. But looking at the P/E ratio it remains below the S&P 500 average of 20-25. So, on the other hand there’s an argument to say it could continue to grow.
There is a theory behind momentum stocks that investors under-react when stock prices approach their 52-week high. This can lead stocks returning to their 52-week high, to be undervalued.
Pason Systems Inc. (OTCMKTS: PSYTF)
Pason Systems Inc. (OTCMKTS: PSYTF) is a leading energy services and technology company. It develops and delivers high-value hardware, software, and services, primarily for the oil and gas drilling industry in 12 countries.
Pason Systems is a stock that has enjoyed an 87.68% growth in share price over the last 6 months. The share price grew from $6.17 to $11.58. The 52-week high for the stock is $15.30. Therefore, the stock may have further room to grow.
Going by growth in revenue, earnings and cashflow Y/Y, momentum seems strong. Pason Systems is also in a very healthy financial position with $158.28m in cash and $7.33m in debt reported in the most recent quarter.
IRadimed Corporation (NASDAQ: IRMD)
IRadimed Corporation (NASDAQ: IRMD) develops, manufactures, markets, and distributes magnetic resonance imaging (MRI) compatible medical devices, and related accessories and services in the United States and internationally.
IRMD stock has appreciated over 50% in the last 6 months. Growing from $33.76 to $50.75. The 52-week high for the stock is $54.70.
Analyst, Scott R Henry of Roth Capital Partners, has given IRMD stock a Buy rating with a target share price of $53.
IRadimed is in a healthy financial position. Total cash sits at $62.5m and debt is at $2.48m in the most recent quarter.
Builders FirstSource, Inc. (NYSE: BLDR)
Builders FirstSource, Inc. (NYSE: BLDR) is a Fortune 500 company manufacturing and supplying building materials. The company is the largest supplier of building products, prefabricated components and value-added services in the US.
BLDR stock has a pretty low P/E ratio in comparison to the S&P 500. However, it has achieved 41.55% growth in share price over the last six months. The BLDR share price has grown from $53.96 to $76.38. Its 52-week high is $86.50.
84.6% of analysts give this stock a buy rating with a consensus target of $100.36. This is mainly due to its big jump in revenue, earnings and cashflow growth Y/Y.
One thing to consider is the large debt position which stands at $3.4bn, while its cash position is just $42.6m.
However, total assets exceed $10bn, therefore Builders FirstSource should be clear to cover its debt in a worst-case scenario.
Capstone Mining Corp (TSE: CS)
Capstone Mining Corp (TSE: CS, OTCMKTS: CSFFF) is a copper miner involved in exploration and production in the United States, Mexico, Canada, and Chile.
The momentum with the stock is relatively high. It has seen share price appreciation over the last six months of 52.06%. Growing from $3.82 to $5.81 at the time of writing. However, the 52-week high for the stock is $7.80 suggesting the stock has room to grow.
The stock is in a healthy cash position with $264.35m in cash and only $16.04m in debt, plus total assets of $1.7bn.