Momentum Investing and Its Role in Stock Selection: A Comprehensive Guide

Momentum investing is a popular investment strategy that focuses on following the recent trend of a stock's price. This approach can be divided into two main categories: long-term momentum, where investors buy high with the hope of selling even higher, and short-term momentum, which involves buying low and selling high to take advantage of the trend.

In this article, we will delve deeper into the concept of momentum investing and explore how it can be applied in real-world scenarios. We will also examine the role of the Zacks Momentum Style Score, a tool that helps investors identify stocks with strong momentum characteristics. Our focus will be on Univest (UVSP), a holding company for Univest Bank and Trust Co., which currently boasts an A-grade momentum style score.

The Challenge of Defining Momentum

Momentum is often seen as a key driver of stock performance, but defining it can be a daunting task. Different investors have varying opinions on what metrics are best suited to capture momentum, leading to a lot of debate within the investment community. The Zacks Style Scores aim to address this issue by providing a comprehensive framework for evaluating stocks based on their underlying characteristics.

The Components of the Momentum Style Score

To understand why Univest is a solid momentum pick, let's examine some of the key components that contribute to its A-grade momentum style score. One essential aspect of momentum is price change over time. This can be measured by examining the stock's short-term price activity and comparing it with its industry peers.

For UVSP, shares have increased 5.4% over the past week, outperforming the Zacks Banks - Northeast industry's 4.31% gain during the same period. Looking at a longer time frame, the monthly price change of 8.41% is more impressive than the industry's 7.77%. These numbers indicate that UVSP shares are showing strong momentum.

Price Metrics and Performance

In addition to examining short-term price activity, it's also essential to consider longer-term metrics such as performance over the last three months or year. This helps investors gauge whether a stock is still on an upward trend or if its momentum is starting to wane.

For UVSP, shares have gained 15.92% over the past quarter and 39.53% in the last year, far surpassing the S&P 500's 10.24% and 14.41% returns during the same periods. These numbers demonstrate that Univest has maintained its momentum over a longer time frame.

Average Trading Volume

Another vital aspect of momentum investing is average trading volume. This metric helps investors assess whether there are sufficient buyers and sellers in the market to sustain a trend. A rising stock with above-average volume generally indicates bullish sentiment, whereas a declining stock on high volume often signals bearishness.

Currently, UVSP's 20-day average trading volume stands at 105,224 shares, which suggests that the stock has adequate liquidity to support its upward momentum.

Earnings Outlook and Estimate Revisions

The Zacks Momentum Style Score also incorporates earnings estimate revisions into its calculation. A positive trend in earnings estimates can signal a stock's potential for future growth, as it indicates that analysts are increasingly optimistic about its prospects.

For UVSP, two recent earnings estimate revisions have boosted the consensus estimate from $2.63 to $2.78 over the past 60 days. Furthermore, two upward revisions have been made for next fiscal year, with no downward revisions in the same period. These developments demonstrate that investors and analysts are increasingly confident about Univest's earnings prospects.

Conclusion

Given the analysis of UVSP's momentum characteristics and its impressive performance metrics, it is not surprising that it boasts a Momentum Style Score of A and a Zacks Rank of #2 (Buy). This stock has shown sustained upward momentum over both short-term and long-term periods, with strong earnings estimate revisions adding to its allure.

If you're looking for a fresh pick that's poised to soar in the near term, make sure to keep Univest on your radar.