The clock's ticking down, your team's down one, you're being double-teamed, and you wouldn't have enough time to get off a good shot even if you were allowed to drop-kick both defenders. So whom do you dish the rock to?
Your first thought might be the resident superstar -- the Kobe Bryant or LeBron James. But what if Kobe, as good as Kobe is, is playing colder than an Alaskan snowdrift? That's right, you dish to the guy with the hot hand, the guy who will be deemed en fuego tomorrow on ESPN.
Momentum investors are looking for stocks in a similar state of sizzle when they make investments. They want to give the nod to the stocks that are hot to the touch.
But momentum by itself will only get you so far. What sounds more interesting to me than simply looking for stocks that have momentum is finding high-quality stocks that also have some positive inertia on their side. It's like kicking the ball out to Michael Jordan or Larry Bird when they do have a hot hand.
To find these high-quality winners, I cross-referenced a pretty simple momentum screen with data from The Motley Fool's new investing community, CAPS. The result is a starting lineup of all-star stocks that all currently have a fiery shooting hand. Each of the companies below is up 30% or more over the past year, is within 5% of its 52-week high, and has been rated highly by CAPS players.
|
|
12-Month Change
|
Percent Below 52-Week High
|
CAPS Rating (out of 5)
|
|
VASCO Data Security (:VDSI)
|
213.7%
|
0.2%
|
*****
|
|
Key Technology (NASDAQ:KTEC)
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127.3%
|
3.5%
|
*****
|
|
Triumph Group (:TGI)
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56.0%
|
0.9%
|
*****
|
|
Cameron International (NYSE:CAM)
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55.6%
|
2.6%
|
*****
|
|
Alleghany (NYSE:Y)
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48.2%
|
4.7%
|
*****
|
Sources: Yahoo! Finance, Capital IQ (a division of Standard & Poor's), and CAPS as of July 30.
At first glance, this sure looks like a high-flying group. But, as always, I highly advise taking a close look before you throw a bounce pass in the direction of any of these stocks.
The Key to great returns
You might want to argue that the key to great returns is turning back the clock and investing in Key Technologies five years ago. Investors who have been with the company since then know what I'm talking about -- the stock has been a cool five-bagger.
Key Technologies can track its origins back to 1948 as a producer of vegetable processing equipment. Today, the company retains connections to its beginnings and is helping bring high-tech to food processing plants.
Particularly in developed markets like the U.S., the food processing industry is undergoing the transition from manual inspection of food products to automated inspection. Equipment like that sold by Key Technologies allows food processing companies to improve the processing yields, reduce labor costs, and produce more consistent quality. If you've ever been in the California Bay Area and sat in a manual toll lane for 20 minutes while other cars whizzed past in the automated lanes, then you have a vague idea of the improvement Key Technology's systems can provide (and a very good idea of how bad Bay Area traffic can be).
The bulk of the company's business comes from the food and tobacco industries, but it has been expanding into the markets for nutraceuticals and pharmaceuticals. It has also been ramping up operations in the rapidly growing Chinese market. This growth hasn't come without its pains, though, and 2006 saw the company in the red because of increased spending in both areas. Analysts are currently projecting a return to profitability for the 2007 fiscal year.
Key Technology's stock has a perfect record of 70-0 on CAPS, with 25 outperform ratings from CAPS All-Stars (the players ranked in the top 20%). One of CAPS' top players, pennysplants, thinks there is a lot to like about this easy-to-overlook stock and offers a staccato breakdown of its high points:
Micro Cap. Good management. Good business model. Good financials. Good Insider ownership. Boring, but important sector. Just added to Russell Small Cap Index. Should help visibility over the next 12 months.
That's the team for this week, but the game doesn't stop here. You can check out more of what your fellow Fools have to say about these stocks by stopping by CAPS, and while you're there, you can also take a peek at few more of the 4,700 rated stocks.
I think I heard a "booyah" somewhere out there -- thanks, Stuart Scott!
More CAPS Foolishness:
When it comes to basketball, Fool contributor Matt Koppenheffer might be the guy Ron Shelton was thinking of when he came up with the title White Men Can't Jump. He does not own shares of any of the companies mentioned. The Fool's disclosure policy has a 55'' vertical jump and can dunk from half court. Or so I hear.
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