Fundamental momentum represents a company’s improvement in operational performance and financial health over time, as measured through changes in key metrics like return on equity (ROE), operating margins, and other fundamental indicators. Unlike price momentum, which looks at historical stock price movements, fundamental momentum focuses on the underlying business performance trends. According to Huang’s research in the Twin Momentum paper, companies showing positive fundamental momentum – specifically those with improving ROE over the previous four quarters compared to the prior four quarters – tend to outperform those with deteriorating fundamentals.
The importance of fundamental momentum in investing stems from its ability to identify companies that are genuinely improving their business operations rather than just experiencing short-term price appreciation. When a company demonstrates consistent improvement in its fundamental metrics, it often signals effective management execution, growing competitive advantages, or successful adaptation to market conditions. Huang’s research shows that combining fundamental momentum with price momentum creates a more robust investment strategy than using either factor alone, as it helps investors identify companies that are not only performing well in the market but also have the underlying business strength to sustain their performance. This dual approach helps reduce the risk of investing in companies that are merely riding market sentiment without substantive operational improvements.
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Here are the top 10 most fundamentally sound high fundamental momentum stocks using our guru models as of January 2025.
| Ticker | Company Name | Price | Market Cap ($mil) | P/E Ratio | Price/Sales | Relative Strength | Price/Book | Price/Cash Flow | Dividend Yield | Fundamental Momentum Percentile |
|---|---|---|---|---|---|---|---|---|---|---|
| CALM | Cal-Maine Foods Inc. | $107.54 | $4,757 | 12.3 | 1.8 | 90 | 2.8 | 9.4 | 1.8% | 1 |
| HRB | H & R Block Inc. | $53.83 | $7,377 | 13.2 | 2.0 | 67 | 1.6 | 10.4 | 2.4% | 1 |
| AESI | Atlas Energy Solutions Inc. | $22.98 | $2,525 | 30.6 | 2.7 | 80 | 2.4 | 14.6 | 2.0% | 1 |
| NXPI | NXP Semiconductors NV | $208.86 | $53,083 | 19.9 | 4.1 | 57 | 5.6 | 14.4 | 1.9% | 1 |
| POWL | Powell Industries Inc. | $245.90 | $2,955 | 20.0 | 2.9 | 95 | 6.1 | 18.9 | 0.4% | 1 |
| HOG | Harley-Davidson Inc. | $30.01 | $3,821 | 6.8 | 0.7 | 41 | 1.2 | 5.1 | 2.3% | 1 |
| URBN | Urban Outfitters Inc. | $57.54 | $5,310 | 16.5 | 1.0 | 87 | 2.3 | 12.0 | 0.0% | 1 |
| EPAC | Enerpac Tool Group Corp. | $40.82 | $2,221 | 26.2 | 3.8 | 80 | 5.6 | 22.4 | 0.1% | 1 |
| ONTO | Onto Innovation Inc. | $180.03 | $8,892 | 48.8 | 9.4 | 77 | 4.7 | 35.6 | 0.0% | 1 |
| SQM | Sociedad Química y Minera de Chile SA (ADR) | $36.70 | $10,121 | 8.1 | 2.1 | 29 | 2.1 | 604.5 | 2.0% | 1 |
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