In today’s rapidly changing technology sector, identifying stocks with strong growth potential can be challenging. Validea’s Twin Momentum strategy offers a unique approach to identifying stocks that are not only performing well, but are also backing that performance up with their fundamentals.
Let’s explore this strategy and five tech stocks that are currently passing its rigorous criteria.
Understanding Validea’s Twin Momentum Strategy
The Twin Momentum strategy, based on research by Dashan Huang, looks for stocks exhibiting both strong fundamental and price momentum. This dual approach aims to identify companies that are not only performing well in the market but also have solid underlying business fundamentals.
Key Criteria
- Fundamental Momentum: This captures the overall trend in a company’s fundamentals. It is calculated using a combination of seven variables including earnings, return on equity, return on assets, and various profitability metrics.
- Price Momentum: Determined by the stock’s performance over the most recent twelve months, excluding the latest month.
- Final Rank: Stocks are ranked based on the combination of fundamental and price momentum, with only the top 5% passing the strategy.
5 Tech Stocks Passing the Twin Momentum Test
1. Arista Networks Inc (ANET)
Arista Networks, a leader in data-driven networking solutions, shows impressive momentum:
- Fundamental momentum: 7.92% (11th percentile)
- Twelve minus one month return: 84.06% (7th percentile)
- Final rank: 2nd percentile
Arista’s strong performance is driven by its innovative cloud networking platforms and consistent earnings growth, with a 43.9% historical EPS growth rate.
2. Broadcom Inc (AVGO)
Semiconductor giant Broadcom demonstrates robust momentum:
- Fundamental momentum: 29.32% (1st percentile)
- Twelve minus one month return: 83.09% (7th percentile)
- Final rank: 1st percentile
Broadcom’s diversified portfolio across semiconductor and infrastructure software solutions contributes to its strong position in the strategy.
3. Benchmark Electronics Inc (BHE)
Benchmark Electronics, a provider of engineering and manufacturing services, shows impressive momentum:
- Fundamental momentum: 18.89% (3rd percentile)
- Twelve minus one month return: 75.11% (7th percentile)
- Final rank: 1st percentile
The company’s focus on high-value markets and consistent earnings growth (48.8% historical EPS growth rate) contribute to its strong performance.
4. CleanSpark Inc (CLSK)
CleanSpark, a bitcoin mining company, demonstrates exceptional momentum:
- Fundamental momentum: 8.28% (10th percentile)
- Twelve minus one month return: 157.08% (3rd percentile)
- Final rank: 1st percentile
Despite being in the volatile cryptocurrency sector, CleanSpark’s focus on sustainable bitcoin mining practices has contributed to its strong momentum.
5. NVIDIA Corp (NVDA)
Technology giant NVIDIA shows outstanding momentum:
- Fundamental momentum: 13.01% (6th percentile)
- Twelve minus one month return: 155.34% (3rd percentile)
- Final rank: 1st percentile
NVIDIA’s dominance in AI and gaming markets, coupled with its impressive 100.4% historical EPS growth rate, drives its strong performance in the strategy.
Further Research
