This investing strategy revolves around investors believing that the stock which has outperformed the market will continue to do so, because of underlying factors which cannot disappear overnight. Other investors would pile into such stocks further bidding the price up, thus creating further momentum and a loop of the process. This does not happen very often but there are certain companies whose stock delivers such a performance. The following stock represents a rare momentum play that stretched out for quite some time. For momentum investors, it could potentially be a stock worth investing in.
Alcoa Corp. (NYSE: AA)
Some investors might jump in and say that Alcoa is actually a growth stock, and they would not be wrong. However, Alco can be both. This bauxite, alumina, and aluminum products company projects that its earnings per share (EPS) will grow 85.9% in 2022 going well above the industry average of 47.7% expected EPS growth. Historically, Alco grew its EPS by 6.1% and year-over-year cash flow by an eye-watering 347.7% compared to the industry average of 63.5%. Investors find a strong correlation between trends in earnings with the near-term stock price movement. This is very evident from looking at the stock chart of Alcoa. The stock has been on a constant rise over the past two years trading well above the daily Simple Moving Averages. Climbing up the stock rarely retracted and when it did, it created a strong resistance around the 20 day SMA. Analysts have a moderate buy on the stock with the next 12 months’ average price prediction of $87.54, slightly below the current trading price of $89.66. Most bullish analysts have a target price of $115. Momentum investors would most likely disregard analysts’ opinions and follow the old adage “the trend is your friend” when investing. Alcoa had a tremendous run-up in the past two years with the stock performing well. With current geopolitical tensions, rising commodity prices and fears of inflation Alcoa may still have room to go. Shrewd investors will do well if they keep an eye on this stock and put it on their watchlists. Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.