3 Momentum Stocks to Snag for a Strong Q4
The rhythm of Wall Street is undeniably bullish as we march into the fourth quarter, with both the S&P 500 Index and the Dow Jones Industrial Average setting new record highs. Optimistic analysts, notably from Jefferies, have advised investors to consider staying on the momentum trade as the year wraps up. History tells us rising stocks often continue their upward trajectory, while falling ones seem to sink deeper. Jefferies’ U.S. small-mid cap strategist, Steven DeSanctis, provides a compelling case for this approach, stating, “momentum has been red-hot and tends to keep its momentum heading into the last few months of a year.” Here are three robust contenders to consider in this favorable climate.
Momentum Stock #1: Howmet Aerospace Inc. (HWM)
Pittsburgh-based Howmet Aerospace Inc. (HWM) stands out as a critical player in the aerospace and transportation industries. This company, which boasts a market capitalization of $43 billion, engineers precision components for jet engines and designs titanium structures crucial to optimizing aerodynamics and fuel efficiency. HWM also provides forged aluminum wheels tailored for heavy trucks. Over the past 52 weeks, shares have soared nearly 138%, and they’ve gained about 95% year-to-date (YTD), recently peaking at $106.76.
In September, Howmet declared a quarterly dividend of $0.08 per share, further incentivizing investment. The yield, though modest at 0.30%, coupled with compelling growth metrics, keeps investors interested. Their latest fiscal Q2 earnings exceeded forecasts with a 14% revenue growth to $1.9 billion, buoyed by a whopping 27% uptick in the commercial aerospace sector. Adjusted earnings per share (EPS) surged 52% annually, hitting $0.67.
Crucially, Howmet is in a favorable financial position with $752 million in cash, and it has managed to reduce its long-term debt from $3.5 billion to $2.9 billion. Management has also raised its full-year guidance for 2024, projecting revenue between $7.40 billion and $7.48 billion and adjusted EPS between $2.53 and $2.57. Analysts are overwhelmingly bullish on this stock, with 18 out of 21 recommending a “Strong Buy.”
Momentum Stock #2: Onto Innovation Inc. (ONTO)
In the heart of Massachusetts, Onto Innovation Inc. (ONTO) is making significant strides in advanced semiconductor packaging. Valued at around $10.3 billion, Onto’s technology suite is indispensable in enhancing yield and performance, especially in the domains of high-performance computing and AI. The stock has experienced a remarkable 66.7% appreciation in the last year and a 37% jump within 2024 alone.
The company’s Q2 earnings report was particularly impressive, revealing a 27% revenue growth to $242.3 million, with a remarkable adjusted EPS leap of 67.1% to $1.32. Onto’s strong performance has drawn attention, especially as specialty and advanced packaging revenues reached record heights due to high demand for AI packaging solutions. With Q3 earnings expected on October 31, management anticipates revenue between $245 million and $255 million, with adjusted EPS ranging from $1.25 to $1.35.
Analysts predict Onto will achieve a 38.9% profit increase for fiscal year 2024, with further growth projected at 23.8% for 2025. The consensus on this stock is robust, with six out of seven analysts recommending a “Strong Buy.”
Momentum Stock #3: US Foods Holding Corp. (USFD)
Based in Rosemont, Illinois, US Foods Holding Corp. (USFD) is a pivotal entity in the U.S. food service sector, supplying an extensive range of clients from local diners to national hotel chains. The company has a market cap of $15.3 billion, with stock rising by 66.6% in the last year and more than 37% YTD. It achieved an all-time high of $63.13 on October 15.
In its fiscal Q2, US Foods reported solid revenue of $9.7 billion, marking a year-over-year increase of 7.7%. The adjusted EPS increased by 17.2% to $0.93, though it fell just short of consensus estimates. Notably, the company continues to gain ground in the competitive landscape, marking its 13th consecutive quarter of market share gains in independent restaurant case volume. Analysts forecast net sales for fiscal 2024 to be between $37.5 billion and $38.5 billion, with adjusted EPS between $3.00 and $3.20.
Analysts predict an 18.4% increase in profits year-over-year to $2.90 per share in fiscal 2024 and an additional 20.3% bump to $3.49 in fiscal 2025. The consensus remains favorable, with 11 out of 14 analysts declaring a “Strong Buy.”
Conclusion
As investors look to capitalize on momentum, Howmet Aerospace, Onto Innovation, and US Foods Holding emerge as compelling candidates for Q4, each with their unique strengths and market position. While no investment comes without risks, these stocks show promising growth potential as we wrap up the year. It’s high time to reconsider your portfolio strategy in light of these momentum trades.