In This Article:
The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to new product launches, positive news, or even a dedicated social media following.
But not every company with momentum is a long-term winner, and plenty of investors have lost money betting on short-term fads. Keeping that in mind, here is one stock we think lives up to the hype and two not so much.
Two Momentum Stocks to Sell:
Insteel (IIIN)
One-Month Return: +31.6%
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.
Why Do We Think IIIN Will Underperform?
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Annual sales declines of 13.4% for the past two years show its products and services struggled to connect with the market during this cycle
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Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 44.9% annually, worse than its revenue
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Eroding returns on capital suggest its historical profit centers are aging
Insteel’s stock price of $35.74 implies a valuation ratio of 18.2x forward P/E. Dive into our free research report to see why there are better opportunities than IIIN.
Moog (MOG.A)
One-Month Return: +8.6%
Responsible for the flight control actuation system integrated in the B-2 stealth bomber, Moog (NYSE:MOG.A) provides precision motion control solutions used in aerospace and defense applications
Why Are We Wary of MOG.A?
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Annual revenue growth of 4.2% over the last five years was below our standards for the industrials sector
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Estimated sales growth of 1.7% for the next 12 months implies demand will slow from its two-year trend
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Free cash flow margin dropped by 12.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Moog is trading at $179.24 per share, or 20.3x forward P/E. Read our free research report to see why you should think twice about including MOG.A in your portfolio, it’s free.
One Momentum Stock to Buy:
Sterling (STRL)
One-Month Return: +31.4%
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ:STRL) provides civil infrastructure construction.
Why Is STRL a Top Pick?
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Annual revenue growth of 11.9% over the last five years was superb and indicates its market share increased during this cycle
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Free cash flow margin increased by 13.9 percentage points over the last five years, giving the company more capital to invest or return to shareholders
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Returns on capital are growing as management capitalizes on its market opportunities