Why Are There So Many FTSE 100 Companies In My Momentum Screen?

20th Jan by Roland Head

13 comments 1879 reads

Like many Stockopedia subscribers, I have a collection of stock screens in different styles that I’ve built up over time. Checking these occasionally can flag up an interesting opportunity or investing theme to consider that I might not otherwise spot.

When I checked my momentum screen recently, I was surprised to see that seven of the top 10 shares were FTSE 100 companies, rather than the small/mid-cap growth stocks I’d expected to see: AD_4nXdvbpUmY7-vtjFadbYmnHLI8oiv53ajp--d2I0T0gT2_-MeW55W8fqmBEsepUw7aEJ6J3a4iQLo2PRAto9fCauK7tUQzAklpqrad79sAe7kwaHB090Mz7aWh-wQH4mdmDpfo-928Q?key=dHr24ew3o9I7l7f7bD7XvCp_

Admittedly, there were a few smaller names in there (and further down the list). But I was curious to understand why these top FTSE 100 names were scoring so well.

One explanation may simply be that the outlook for the index as a whole seems positive for the year ahead, while the median valuation remains reasonable:

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However, I think it’s worth taking a closer look at the companies near the top of my screen results. Why do they have such strong momentum right now – and can it be maintained?

Screening for momentum

Before I look at some of these stocks in more detail, I just want to revisit the MomentumRank and share the rules of my momentum screen with you.

MomentumRank: academic research suggests there are two main elements to stock market momentum – price and earnings momentum. If earnings forecasts are being upgraded, share prices tend to rise also.

You can find Ed’s in-depth explanation of the MomentumRank here, but in summary, the factors used to calculate this score are shown in the image below:

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My Momentum screen: you can view or copy this fairly simple screen here.

The main requirement is for a MomentumRank of over 80. I’ve then added a few other rules in order to restrict the results to profitable, reasonably valued companies with positive earnings growth.

The screen’s results are sorted by MomentumRank.

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My additional requirements may be one reason why some FTSE 100 companies are scoring well. They are often a little cheaper than faster-growing small caps.

However, these extra requirements are useful for me because they help align the screen more closely to my personal investing preferences:

I don’t…

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FREng

21st Jan

Do you think that there is s as any chance that the contribution of aviation to climate change will lead to increased taxation or to a reduction in people wanting to fly on holiday?

Paul Walton

You only have to look at the etf The Travel UCITS ETF Acc (LON:TRIP) to realise that Travel is a strengthening theme in the market at the moment. Here International Consolidated Airlines SA (LON:IAG) , Intercontinental Hotels (LON:IHG) and On Beach group (LON:OTB) are trending strongly

Rusty2

Because the FTSE100 is up.The £ is down which helps companies with revenues in foreign currencies.

Many small caps have been falling since the budget, higher costs and if they are importers, then even higher costs again now. See Shoe Zone (LON:SHOE.). Energy costs are rising also.

John O' Gaunt

Many, many thanks Roland. Yet another helpful article packed with information and insights! I've been on the large-cap bandwagon for several months and hold HSBA, NWG and IAG.

In the unlikely event that it does, it will happen very slowly and you'll have plenty of time to see the trends emerging.

intuitive6191

Re HSBC

It has been a buy and hold for me for many years - though I did do a sell and repurchase during Covid.

Very reliable so far for those with a long term investment perspective.

Sharewallah

A very interesting article, Roland. Thank you.

I'm surprised Aviva (LON:AV.) is in the top 10. Natwest (LON:NWG) is not, presume fails on PEG on TTM? How reliable are the TTM figures, though?

Seems the Natwest (LON:NWG) TTM PEG is not available, for some reason. Not keen on using TTM, some stocks have 2HY weighting or vice versa.

Clive Rees

Thanks Roland, very interesting.

DavidMcCabe

22nd Jan

Hi Roland,

Interesting article and you make many good points about International Consolidated Airlines SA (LON:IAG) .

I am biased perhaps, as this is my second largest position, but I am more positive about continued increases in the share price. I would not expect a P/E ration to be high for an airline, but I could see this increase further to perhaps 10. I can also see profits continuing to increase as whilst normally higher flight prices lead to greater capacity being brought on, there are supply issues with new planes. Hence capacity constraints should lead to higher still margins, as should debt reduction.

An increase in P/E of 30% and profits by 50% could see a 1.3 * 1.5 increase in the share price. I.e. I could still see it doubling again.

David

af20001

One potential negtive on the horizon for International Consolidated Airlines SA (LON:IAG) - BA has just announced big changes to their loyalty program, which will in effect make it very difficult for 'leisure' travelers to earn or retain their status privileges. There already seems to be a number of cases of competing airlines offering status matching for regular flyers. The worry would be this will effect the premium economy & business class end of the market, which could have a disproportionate effect on revenues if regular flyers move en masse to competing loyalty progams/airlines.

If nothing else, it's been a PR own goal for BA.

Redrichmond

2nd Feb

Takeover of TAP , that hopefully will happen, subject to how the Portuguese government want to sell it , they own 51% and want their money back .A 1 billion buyout of TAP will open doors to south america. IAG need to improve on cargo and reduce debt. I bought at 110 and get topping up on occasions to have 60-70% portfolio in it. Now reduced to around 45%

Also they have a 600 million outstanding HMRC tax avios VAT nonsense they paying for now. If IAG win with interest that could pay for TAP. Im hoping for an update on the avios VAT lawsuit in the results

i'm hoping 500-550 then I will reduce holdings. But some analysts are saying 700 (they are most times wrong- david dreman excellent book on contrarian investing gives a whole section on brokers and how they re owned buy the banks and a conflict of interest and been constantly wrong for last 20 years)

One thing though its still very cheap and Im still overweight till 500

Check latam airlines LATAM Airlines SA (NYQ:LTM) . After chapter 11 its coming back like AIG. They own the skies in south america, 3-5 year old maybe but was at 1000p now 30p , hundreds of fleet and thousands of staff

Why are there so many FTSE 100 companies in my momentum screen?

Screening for momentum

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Roland Head

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