Surging stocks that are still earning broker upgrades

Wednesday, Jun 19 2013 by
Surging stocks that are still earning broker upgrades

Four weeks of sliding markets have proved to be a test of wits for momentum investors. With the FTSE All-Share down by 5.5% over the past month, some stocks that once looked promising candidates for future gains have had the brakes firmly applied to their prices. But while a number of shares have fallen in line with the market correction, a handful of others have marched on regardless. Often, these are the companies that the smart money has the most confidence in; where the earnings outlook is improving and the macro picture matters far less. When markets rebound, they can also be the stocks that are best positioned to continue to outperform. So how do you find them? 

Price momentum soars 

Buying shares that have a recent track record of rising in price (and selling those that have recently fallen) has been proven to be a potent investing strategy. A quick look at a pure price momentum formula – such as our Professor Jegadeesh - inspired Price Momentum Screen – shows that trading on relative price strength would have netted a 39.9% return over the past 12 months, against an albeit impressive 16.3% from the FTSE 100. 

Investor optimism and rising market prices have been kind to momentum stocks for much of 2013, particularly those with good news and strong financial performances. Even in the last troubled month for UK stocks this pure price momentum strategy has continued to rise: up 1.5% versus a -4.7% fall for the FTSE. But there is a need for caution. In early 2012, Andrew Lapthorne at Societe Generale warned that “if it is macro and market events and not company fundamentals driving stock prices, then using price momentum as a trading signal becomes fraught with danger”. Lapthorne was alluding to the risk that that blindly following momentum stocks can leave investors exposed to a March 2009-type crash – a rare occasion when momentum strategies are turned on their head. 

To avoid crashes, researchers have long studied so-called stock specific factors that drive price momentum to find shares that are rising on their own merit and I’ve been shouting about the performance of our Earnings Upgrade Momentum screen so far this year for precisely the same reason. Shares that have recently been upgraded by brokers (sometimes because of earnings surprises) often witness a lag in price accretion as…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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Xaar plc is engaged in the development of digital inkjet technology and manufacture of piezoelectric drop-on-demand industrial inkjet printheads. The Company's segments are product sales, commissions and fees, and royalties. It offers a range of industrial inkjet printheads and printhead systems, which are designed and produced to meet the customer-driven requirements of a range of manufacturing applications. Its primary markets include wide-format graphics, ceramic tiles, labels, packaging, coding and marking, three-dimensional (3D) printing, advanced manufacturing and decorative laminates. The Company sells its technology in component form (the printhead) to original equipment manufacturers (OEMs) producing and selling the complete digital printing solution to the end market. It partners and co-develops with fluid suppliers, hardware and software integrators, and substrate suppliers to deliver a total solution to the end user. more »

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Treatt PLC is a United Kingdom-based ingredients manufacturer and solutions provider to the flavor, fragrance and consumer goods markets. The Company's geographical segments include United Kingdom, Rest of Europe, The Americas and Rest of the World. The Company's products include Essential oils, Citrus, Treattarome, Functional ingredients, Chemicals, Organic essential oils, Vegetable oils and Treatt brew solutions. Its Essential oils include Amyris Oil, Angelica Oil and Aniseed Oil. Treattarome products include Pineapple Treattarome, Honey Treattarome and Cucumber Treattarome. Its Citrus products include citrus oils, CitrustT, TreattZest and Citrus add-back range. Its Functional ingredients include beverage specialties, fragrance ingredients and sugar reduction products. Its chemicals include aroma chemicals, natural chemicals and Treatt Flavour Wheel. Its Vegetable oils include Borage Oil and Baobab oil. Its organic essential oils include Organic Aniseed Oil and Organic Lime Oil. more »

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UK Mail Group plc is a holding company of UK Mail Limited. The Company is an integrated postal operator, offering parcel and mail delivery solutions both locally and across the world. Its principal activity is the provision of express collection and delivery services for parcels, mail and palletized goods. Its segments include Mail and Parcels. UK Mail Limited is engaged in the collection and delivery of parcels and mail. Its parcel delivery solution operates from a national network of over 50 sites across the United Kingdom. Its parcel services include UK Parcels, iConsign and ipostparcels. Its overnight distribution network links with Royal Mail's postman and postwoman for final delivery. The customers using its mail services need to show a Posting Indicator in the top right corner of each item of mail. Its mail services include Unsorted Mail, Sorted Mail, imail and Packets. It also offers additional services, including International Mail, Returned Mail and Mail Despatch Systems. more »

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  Is LON:XAR fundamentally strong or weak? Find out More »

1 Comment on this Article show/hide all

WhichInvestmentTrust 20th Jun '13 1 of 1

I sat in front of a fund manager from Franklin Templeton last week who waxed lyrical about the future prospects for Xaar.

He has done very well from it already but is confident there is much more to come.

Even today when the market has declined 3% with growth stocks doing badly Xaar has dropped a smidgeon over half a per cent.

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About Ben Hobson

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