About three months ago, I talked about small-cap stocks enjoying strong price momentum.
On its own, positive momentum -- which is basically the speed at which a stock's price accelerates -- does not mean that a stock will do well going forward. That said, it's still a powerful force from which traders often benefit.
That's because stocks trade on expectations. And because the future obviously can't be predicted consistently and with certainty, markets often continue to move in the same direction as in the recent past. After all, as in life, it's much easier to follow than to resist.
Moreover, because stock prices generally reflect all the available information at any given time, it's natural for investors to assume that a particular stock -- if it's on the way up -- will continue the streak of good news that propelled it higher to begin with.
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Let's Screen For Small-Cap Momentum Stocks
This is what I'm looking for this time around. We recently ran a screen for stocks over at my Fast-Track Millionaire premium newsletter service, seeking to identify smaller-cap names that doubled or more in the past year (and still trade near those highs). This should allow us to identify companies that have benefitted from good news in the past year and where the market still sees the overall story as positive.
I'm hoping this screen will help us pinpoint a growth story or two that I may have overlooked over the past 12 months.
The most important factor here is share-price appreciation of 100% or more in the past year. Another is a requirement that the most recent 52-week high was achieved within the past week. A third prerequisite has to do with market size: only stocks with a market capitalization between $500 million and $3 billion have been considered. (This last one is important. If we go too big, the law of large numbers will essentially limit our upside. Go too small, and we may be taking on too much unnecessary risk.)
Only four stocks that made it through these screening conditions (the market's 5%-plus decline in May must have something to do with this relatively small number). Here's what I found...
I really like Arrowhead Pharmaceuticals (Nasdaq: ARWR) and its story.
ARWR is up nearly 130% over the past 52 weeks, 300% over the past three years and nearly 1,900% from the low of $1.24 (set on December 16, 2016). This small biotech has had a ton of good news lately, ranging from establishing a new collaborative partnership with biotech giant Amgen (Nasdaq: AMGN) in September 2016, to successes in the approval process with its wholly-owned drug candidate for Alpha-1 Liver Disease, a hereditary genetic condition that can become liver disease in children and adults.
ARWR is an innovator that fully qualifies it as a game-changer. Its strong market action reflects a sharply improved story, a story that is likely to even get better over time.
Just a year ago, another biotech, Axsome Therapeutics (Nasdaq: AXSM), rarely traded above $3 per share. Today, at a recent share price of $24.42, it's the best-performing stock on today's list: up more than 600% year-over-year.
There are good reasons for this climb. The U.S. Food and Drug Administration last month granted breakthrough therapy designation for a major depressive disorder treatment. This came on the heels of a February announcement that Axsome's migraine therapy will proceed into stage 3 trials (designed for those migraine sufferers who aren't helped by existing treatments). And there is more in the pipeline of this small biotech, too -- including a medication to treat agitation associated with Alzheimer's disease.
This is an exciting stock that has had some very exciting news -- with the potential for even more.
Up 175% in just a year, Enphase Energy, Inc. (Nasdaq: ENPH) is an electrical component maker. But not just any components: it specializes in converters that convert DC electricity (direct current electricity) into AC electricity (alternating current).
ENPH, too, is a legitimate game-changer -- and also operates as a duopoly of sorts: together with SolarEdge (Nasdaq: SEDG), it controls most of the residential market for such converters. But, unlike the two biotechs above, ENPH's near-term future depends on external factors: from a positive -- high expected demand for solar installations -- to a negative: the ongoing trade war and the potential for new tariffs.
Workiva (NYSE: WK), a cloud software company, has more than doubled over the past year. The provider of data integration and other cloud-based software has benefitted from strong execution and new partnerships -- such as one with SAP (NYSE: SAP), a leading European software firm, signed in May 2018.
Workiva is riding a wave of high growth -- related to the ongoing migration of many businesses to the cloud -- and strong execution. This is another company to watch.
Action To Take
Keep in mind that the stocks mentioned here need to be researched further before being considered as an official recommendation. That said, if you're looking for growth stocks with a good story behind them, the names mentioned here are a good place to start your research.
I plan to keep tabs on these stocks in the weeks to come. If I think any of these stocks is a "buy," then my Fast-Track Millionaire subscribers will be the first to hear about it.