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Three profit momentum shares (two look decent value)

It can be a tight call whether to buy shares that have rallied strongly.
Three profit momentum shares (two look decent value)
  • Momentum can be due to the market catching up to an overlooked story
  • It's important to tread carefully and look at underlying trends, not just rebounds

After a stock has been through a very strong rally deciding whether or not to invest can be a fine call and momentum investing can be risky even when so far only smaller gains have been made. To make the decision to invest there must be sustainably improving fundamentals, a solid investment story and evident value should always still be present: that can still be the case even after a stellar share price rise. In two of the three stocks this week (from our recent earnings upgrade momentum screen), we do still see value while the other is more likely only to be riding an economic anomaly. 

Cake Box (CBOX)  – this growing franchise business that sells egg-free cakes for special occasions offers a long horizon of EPS growth on a number of fronts. Smart physical expansion and a long maturity profile for existing branches should drive EPS growth of more than 20 per cent for at least three years. Previously unknown and misunderstood, this interesting business still looks to offer value. 

SThree (STEM) – this is where we see a stock that has risen on short-term gains arising largely from an economic anomaly, namely the labour shortage that has largely sprung from the Covid crisis. This will pass and the current high momentum of job movements may only last until the end of 2022, essentially within sight of the market’s investment horizon. Recruitment is a feast and famine sector: we are in the former and one should invest during the latter. 

Renewi (RWI) – waste management and recycle/reuse of domestic and commercial materials give Renewi  strong green credentials. Augmenting solid market drivers is a three pronged strategy aiming to almost double EBIT by 2025. A checkered trading history has sown market mistrust of that objective being met but a very strong upgrade cycle suggests Renewi will deliver this time. This is not yet fully reflected in the rating even after the share price has quadrupled.

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