In the classic sense of the term, momentum is a view of investing consisting of favoring stocks that have been in a positive trend over the past six and twelve months. At Zonebourse, the momentum certainly includes data relating to the positive trend of the share in the short, medium and long term but above all the revisions of profits and turnover by analysts in the very short term (7 days), in the medium term (4 months) and long-term (12 months), weighted by the visibility of the analysts’ business model and by the divergence of their quantified estimates, assuming that the analysts are rather conservative in their revisions.
During our previous selectionwe chose Ulta Beauty, Infineon Technologies, Reply, Korn Ferry and Pason Systems end of December 2021. A portfolio equally weighted on these five positions will have generated a return of -4.86% against -4.47% for the MSCI World, the reference benchmark in relation to this global selection, over the period from 01/04/2022 to 03/31/2022. This performance in line with the benchmark is explained on the one hand by the cyclicality of this selection, which is more sensitive to recent geopolitical events (a factor which has dragged the selection down for most stocks) but on the other hand compensated by the quality of the companies selected (a factor that drove the selection upwards). German semiconductor maker Infineon was the worst performer at -23.93%, while the portfolio was driven by Canadian oil industry stock Pason Systems at +30.53%.
Let’s take a closer look at the five stocks selected for the second quarter of 2022 (April to June).
Our “momentum” selection for the next three months:
Sanderson Farms (SAFM)
Sanderson Farms is an American company is engaged in the production and distribution of chickens. It is the third largest poultry processor in the United States and distributes its products to major retailers such as Walmart, TGI Fridays, Sysco and Albertsons. This defensive stock is taking advantage of the increase in food prices to increase its margins along the way (the price of chicken in the United States has increased by 38% between 2020 and 2021). The decline in livestock, driven by the increasingly present droughts, has been accentuated by the difficulties in exporting Ukrainian and Russian livestock following the armed conflict in Ukraine. The title meanwhile shows signs of reversal to the upside.
Trend reversal since the invasion of Ukraine by Russia on 02/24/2022:
Source: Zonebourse.com
Broadcom (AVGO)
Broadcom tops the list of the largest semiconductor manufacturers in the world. To be more specific, the company mainly designs and develops analog mixed-signal and optoelectronic systems. The company announced a strong outlook for 2022 and has better-than-industry average visibility on its order book. The company is well positioned in many segments of the semiconductor market such as silicon carbide which should continue to expand into electric vehicles and high performance data centers. Controlling its costs by holding many tangible and intangible assets protects it from inflation, more than other players in the sector.
Evolution of the group’s key figures since 2017:
Source: Broadcom Investors Presentation
Mitsui & Co (8031)
mitsui is a very diversified company around 7 areas of activity (from food distribution to the manufacture of industrial machinery through the production of gas). The most important pole for Mitsui is iron ore, which has seen its prices explode in recent months. The value appears to be good protection against soaring commodity prices. Analysts continue to revise growth prospects for the next three years upwards. This is also a position of the Japanese portfolio of Warren Buffett. The fundamentals are “acceptable”. However, they are in strong improvement and should continue in this direction, which will support the title in the coming months.
Evolution of BNA estimates by analysts for the 2022, 2023 and 2024 financial years:
Source: Zonebourse.com
Westlake Corporation (WLK)
west lake is an American company that provides building blocks, polymers and chemicals needed by the housing, infrastructure, packaging, healthcare, automotive and consumer goods industries. Its vertical integration into vinyls and olefins acts as a bulwark against current problems in supply chains. The company has a good financial situation and presents a very correct profitability (ROE of 28% in 2021, net margin of 17% in 2021). Its cheap valuation (P/E TTM of 7.7 and Free Cash Flow TTM yield of 13.6%) makes it an investment value while the income statement and the balance sheet are solid and the outlook rather encouraging. The action is already up 28% since the beginning of the year but all the lights are green for the title to continue to climb for some time.
Westlake Corporation Outperformance Ratings Polar Chart:
Source: Zonebourse.com
Pason Systems (PSI)
Pason retains its place in this selection for the second quarter. This Canadian company provides specialized data management systems for drilling rigs to the oil and gas industry as well as technological services to developers of solar energy and energy storage. Its gradual pivot towards renewable energies and energy storage opens up multiple growth opportunities for 2022 and 2023 as well as a possible revaluation of the title with this growing share of business. The company also emerges at the top of our quantitative filters.
Evolution of share prices since the beginning of March 2022:
Source: Zonebourse.com