Published on 1 Nov 2022 on Zacks via Yahoo Finance

3 Momentum Anomaly Stocks to Buy Amid Looming Fed Hike

The broader equity indices appear to be bracing for yet another probable rate hike by the Fed – the fourth successive 75 basis point increase – as it vowed to continue its aggressive stance to curb inflation. The Fed has indicated that it expects to bring the so-called terminal rate to 4.6% from the current range of 3% to 3.25%. The Fed meeting, scheduled to begin today, is widely expected to offer definite cues to the future rate hike program and its likely impact on the economy. With uncertainty becoming the norm of the day, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks when value or growth investing fails to generate the desired profits.This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. But before we delve deep into it, let us try to fathom why does the momentum strategy at all work?There are several behavioral biases that most investors exhibit in their decision-making. And these emotional responses, or rather mistakes, are the very reason that makes momentum strategy work.For example, some investors are anxious about booking losses and hence hold on to losing stocks for too long, hopeful of a rebound in prices. On the other hand, a few investors sell their winners way too early. Momentum investing is one of the best strategies to avoid making such errors in judgment.Furthermore, investors initially tend to underreact to news, events or data releases. However, once things become clear, they have a habit of going with the flow and overreacting, causing dramatic price reactions. These behavioral problems extend trends, thus opening up huge opportunities for momentum players.To sum up, momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.In this context, stocks like CONSOL Energy Inc. CEIX, BancFirst Corporation BANF and  Frontline Ltd. FRO are worth betting on.Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play.Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.

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