Momentum investing capitalizes on strong business trends and technological advancements within today's moderately growing economy. Despite market volatility, momentum stocks offer appealing short-term gains, driven by rising market confidence and the expectation that strong-performing stocks will continue to rise.
Amid this backdrop, investors could consider buying strong stocks like PulteGroup, Inc. (PHM), W. R. Berkley Corporation (WRB), and Toll Brothers, Inc. (TOL), which have recently shown strong momentum and are poised to continue their upward rally.
Economists forecast that U.S. GDP grew at an annualized rate of 1.9% in Q2 2024, an improvement from the previous quarter but still below late 2023 levels. Despite this, strong consumer spending continues to drive economic growth, with retail sales steady in June and a 0.3% rise in May, supporting ongoing economic momentum.
Inflation is nearing the Fed’s target of 2%, which suggests a stable pricing environment. The Fed has kept its policy rate steady at 5.25% to 5.5% since last July. This stability helps maintain predictable borrowing costs for businesses and consumers.
Furthermore, there is speculation that the Federal Reserve may cut interest rates twice this year. Such potential rate cuts could create favorable conditions for investing in high-momentum stocks.
Considering these conducive trends, let’s analyze the fundamental aspects of the above mentioned three high-momentum stocks.
PulteGroup, Inc. (PHM)
PHM engages in the homebuilding business in the United States. It acquires and develops land primarily for residential purposes and constructs housing on such land. The company also offers various home designs under the Centex, Pulte Homes, Del Webb, DiVosta Homes, American West, and John Wieland Homes and Neighborhoods brand names.
On July 9, 2024, PHM announced the pre-sale launch of Deep Creek at Jordanelle Ridge, its first Utah community in over 20 years. Located in Heber City, it offers a blend of outdoor living and city conveniences. The development features eight home designs starting in the mid-$700Ks, with townhomes and amenities coming soon.
In terms of the trailing-12-month EBIT margin, PHM’s 21.55% is 175.8% higher than the 7.81% industry average. Its 22.06% trailing-12-month EBITDA margin is 94.8% higher than the 11.33% industry average. Also, the stock’s 27.22% trailing-12-month Return on Common Equity is 128.1% higher than the 11.94% industry average.
PHM’s total revenues for the fiscal second quarter that ended on June 30, 2024, increased 9.8% year-over-year to $4.60 billion. The company’s net income came in at $809.13 million, representing a 12.3% year-over-increase, while its EPS grew 19.3% over the prior-year quarter to $3.83.
Street expects PHM’s revenue for the quarter ending September 30, 2024, to increase 8.3% year-over-year to $4.34 billion. Its EPS for the same quarter is expected to increase 10.7% year-over-year to $3.21. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 78.1% to close the last trading session at $125.67.
PHM’s stock is trading above its 100-day and 200-day moving averages of $113.59 and $103.33, respectively.
PHM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 22 stocks in the B-rated Homebuilders industry. It has an A grade for Momentum and a B for Quality. To access PHM’s grades for Growth, Value, Stability, and Sentiment, click here.
R. Berkley Corporation (WRB)
WRB is an insurance holding company operating as a commercial lines writer worldwide. It operates in two segments: Insurance and Reinsurance & Monoline Excess.
In terms of the trailing-12-month Return on Common Equity, WRB’s 20.77% is 96.1% higher than the 10.59% industry average. Likewise, its 4.04% trailing-12-month Return on Total Assets is 279.1% higher than the 1.07% industry average. Also, its 22.77% trailing-12-month levered FCF margin is 29.2% higher than the 17.63% industry average.
During the second quarter that ended June 30, 2024, WRB’s net premiums written increased 11.2% year-over-year to $3.13 billion. Its total revenues grew 10.6% from the year-ago value to $3.31 billion. WRB’s net income to common stockholders rose 4.4% from the previous year’s quarter to $371.91 million. Also, the company’s net income per share was $0.92, up 5.7% year-over-year.
Analysts expect WRB’s EPS and revenue for the quarter ending September 30, 2024, to increase 5% and 10.6% year-over-year to $0.94 and $2.92 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 30.7% to close the last trading session at $52.21.
WRB’s stock is trading above its 200-day moving average of $50.71.
It’s no surprise that WRB has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Stability. Within the B-rated Insurance - Property & Casualty industry, it is ranked #12 out of 56 stocks. Beyond what we have stated above, we also have given WRB grades for Value, Sentiment, and Quality. Get all the WRB ratings here.
Toll Brothers, Inc. (TOL)
TOL and its subsidiaries design, build, market, sell, and arrange financing for a range of detached and attached homes in luxury residential communities. It also designs, builds, markets, and sells condominiums through Toll Brothers City Living.
In terms of the trailing-12-month EBIT margin, TOL’s 19.64% is 151.3% higher than the 7.81% industry average. Its 9.13% trailing-12-month levered FCF margin is 67.2% higher than the 5.46% industry average. Similarly, the stock’s 13.08% trailing-12-month Return on Total Capital is 110% higher than the 6.23% industry average.
TOL’s net sales for the fiscal second quarter that ended April 30, 2024, increased 13.2% year-over-year to $2.84 billion. The company’s adjusted net income and adjusted EPS rose 11.6% and 18.6% over the prior-year quarter to $357.50 million and $3.38, respectively. Additionally, its adjusted home sales gross margin came in at $746.91 million, up 5.8% year-over-year.
For the quarter ending July 31, 2024, TOL’s revenue is expected to grow marginally year-over-year to $2.71 billion. Its EPS for the quarter ending January 31, 2025, is expected to increase 2.7% year-over-year to $2.31. It surpassed the Street EPS and revenue estimates in each of the trailing four quarters. Over the past nine months, TOL’s stock has gained 94.7% to close the last trading session at $135.22.
TOL’s stock is trading above its 100-day and 200-day moving averages of $121.18 and $106.19, respectively.
TOL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Quality. It is ranked #4 in the Homebuilders industry. To see TOL’s Growth, Value, Stability, and Sentiment ratings, click here.
What To Do Next?
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PHM shares were trading at $125.13 per share on Wednesday afternoon, down $0.54 (-0.43%). Year-to-date, PHM has gained 21.44%, versus a 15.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 High-Momentum Stocks Set to Continue Rallying StockNews.com
