Even though the U.S. economy is recovering from the COVID-19 pandemic-driven recession thanks to an extensive vaccination drive and government support policies, the financial market is far from stable. The fear of rising inflation has been motivating investors to rotate away from expensive stocks, which has been spurring market volatility.
Amid this situation, investors are turning to momentum investing in the hope that stocks that have managed to gain and sustain their momentum over the past few months might be able to maintain that momentum at least in the near-term. The performance of momentum stocks has not been unimpressive over the past few quarters. The iShares MSCI USA Momentum Factor ETF (MTUM) and Invesco DWA Momentum ETF (PDP) gained 11% and 10.8%, respectively, over the past nine months.
Toyota Motor Corporation (TM), McDonald's Corporation (MCD) and Lowe's Companies, Inc. (LOW) have generated decent momentum over the past few months and should continue advancing in the coming months. So, we think it could be wise to scoop up these stocks now.
Toyota Motor Corporation (TM)
Headquartered in Toyota, Japan, TM is engaged in the designing, manufacturing, assembling, and selling passenger and commercial vehicles, and related parts and accessories. It operates mainly through its Automotive and Financial Services segment. In addition, the company offers fuel cell vehicles, conventional engine vehicles, mini-vehicles and recreational and sport-utility vehicles.
This month, ENEOS Corporation and TM entered a new partnership to explore the utilization and application of hydrogen energy at Woven City, the prototype city of the future that the company has started to develop in Susono City. Because governments around the world are taking several steps to transition the countries to a renewable energy driven future, this move could help TM significantly in expanding its market reach.
On April 27, TM’s subsidiary Woven Planet Holdings, Inc. agreed to acquire Level 5, the self-driving division of Lyft, Inc. (LYFT). The company is expected to gain significantly in the coming months by leveraging Level 5’s world-class engineers and experts and additional technological resources.
TM’s comprehensive income increased 105.6% year-over-year to 3,294.85 billion yen ($30.23 billion) in its fiscal year 2021, ended March 31. Its Income before income taxes increased 5% year-over-year to 2,932.35 billion yen ($26.90 billion). The company’s net income came in at 2,282.38 billion yen ($20.94 billion), which represents an 8.1% year-over-year increase. Its EPS increased 10.3% year-over-year to 794.67 yen.
Analysts expect TM’s EPS to increase 18.4% year-over-year to $17.37 in its fiscal year 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 52.4% year-over-year to $66.42 billion for the current quarter, ending June 30, 2021. The stock soared 34.5% over the past year to close yesterday’s trading session at $160.66. It has gained 13.3% over the past six months.
It’s no surprise that TM has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Sentiment, Growth, Stability and Momentum. Click here to see TM’s rating for Value and Quality as well. TM is ranked #21 of 56 stocks in the Auto & Vehicle Manufacturers industry.
Click here to check out our Automotive Industry Report for 2021
McDonald's Corporation (MCD)
Founded in 1940, the world-renowned fast-food chain MCD has come a long way from its beginnings as a small drive-in restaurant in San Bernardino, California to now operate roughly 39,198 restaurants worldwide. Its segments include U.S., International Lead Markets, High Growth Markets, and Foundational Markets and Corporate.
K-Pop superstars BTS partnered with MCD to offer the band’s favorite order, beginning May 26. This collaboration is part of the company’s latest installment of its Famous Orders program. This promotion is expected to increase its sales because BTS fans take part in the celebration.
MCD’s revenue surged 9% year-over-year to $5.12 billion in the first quarter, ended March 31. Its operating income grew 35% year-over-year to $2.28 billion. Its net income came in at $1.54 billion, which represents a 39% year-over-year increase. The company’s non-GAAP EPS was $1.92, up 31% year-over-year.
For the current quarter, ending June 30, 2021, analysts expect MCD’s EPS and revenue to increase 214.6% and 46% year-over-year, respectively, to $2.08 and $5.49 billion. The stock has gained 10.3% over the past nine months to close yesterday’s trading session at $231.93. Over the past three months, the stock surged 7.7%.
MCD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Quality, and a B grade for Sentiment, Growth and Stability.
We have also graded MCD for Value and Momentum. Click here to access all MCD’s ratings. MCD is ranked #5 of 47 stocks in the A-rated Restaurants industry.
Lowe's Companies, Inc. (LOW)
LOW operates as a home improvement retailer internationally. The company offers a wide range of products for construction, maintenance, repair, remodeling, and decorating. It operates more than 1,974 home improvement and hardware stores and sells its products through its websites and mobile applications as well.
In April, LOW completed the acquisition of the STAINMASTER brand, which is the most recognized and trusted carpet brand in the market. This is expected to advance LOW’s Total Home strategy and expand its product portfolio.
In March, LOW and Chevron announced the exclusive launch of FLEX, a line of cutting-edge, cordless power tools. The line is based on a new FLEX 24V lithium-ion battery platform, which delivers 20% more power than competitors and provides faster recharging. This innovative product is expected to increase LOW’s sales.
The company’s total revenues increased 24.1% year-over-year to $24.42 billion for its fiscal first quarter, ended April 30. Its net earnings increased 73.6% year-over-year to $2.32 billion. Also, LOW’s EPS increased 82.4% year-over-year to $3.21.
Analysts expect LOW’s EPS to increase 13.5% year-over-year to $10.06 in its fiscal year 2022. Its annual revenue is expected to be $91.45 billion in 2023, which represents a 2.9% year-over-year rise. The stock has surged 31.4% over the past six months to close yesterday’s trading session at $192.75. It has gained more than 20% so far this year.
LOW’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system.
The stock has an A grade for Momentum, and a B grade for Sentiment and Quality. Within the A-rated Home Improvement & Goods industry, LOW is ranked #15 of 64 stocks.
To see the additional POWR Ratings for LOW (Growth, Value and Stability), click here.
TM shares were trading at $159.47 per share on Wednesday afternoon, down $1.19 (-0.74%). Year-to-date, TM has gained 3.17%, versus a 9.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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