Why QUAD Is a Top Pick for Value Investors

Understanding Momentum Investing

Momentum investing is a strategy that contrasts with the traditional Wall Street philosophy of "buying low and selling high." Instead, momentum investors focus on stocks that are currently performing well, aiming to capitalize on their upward trend. Rather than waiting for undervalued assets to rebound, these investors prefer to buy into fast-moving stocks, hoping to sell them at even higher prices.

This approach can be appealing because it allows investors to benefit from market trends without having to predict long-term value. However, identifying the right entry point can be challenging. Stocks that appear to be on a winning streak may eventually lose momentum if their valuations outpace their growth potential. In such cases, investors might find themselves holding overpriced shares with limited upside or even losses.

To mitigate this risk, a more balanced approach could involve looking for bargain stocks that still show signs of momentum. This method combines the benefits of both value and momentum investing, offering a potentially safer way to capture gains.

The Zacks Momentum Style Score

One tool that helps identify strong momentum stocks is the Zacks Momentum Style Score, which is part of the broader Zacks Style Scores system. This score evaluates trends in a stock's price and earnings, helping investors spot opportunities where both factors align positively.

Another useful tool is the 'Fast-Paced Momentum at a Bargain' screen. This screen is designed to identify stocks that are moving quickly but are still attractively priced. By combining momentum with valuation metrics, this approach can help investors find stocks that have the potential to deliver strong returns without excessive risk.

Quad/Graphics as a Strong Candidate

Among the stocks that pass through the 'Fast-Paced Momentum at a Bargain' screen is Quad/Graphics (QUAD). Several key factors make this company an attractive investment option.

First, QUAD has shown significant recent price momentum. Over the past four weeks, the stock has increased by 18.5%, indicating growing investor interest. Moreover, the stock has maintained positive performance over a longer period, gaining 13.5% over the last 12 weeks. This consistent upward trend suggests that the momentum is not just a short-term spike.

The stock also exhibits fast-paced movement, with a beta of 1.43. This means that QUAD tends to move 43% more than the overall market in either direction. Such volatility can be beneficial for momentum investors who are looking to capitalize on strong upward trends.

In addition to its strong price performance, QUAD has a Momentum Score of A, which indicates that it is an ideal time to enter the stock and take advantage of the current momentum. This score reflects the likelihood of continued positive performance.

Earnings Estimate Revisions and Zacks Rank

Beyond momentum, QUAD has also benefited from positive earnings estimate revisions. Analysts have raised their expectations for the company's future performance, which often leads to increased investor interest. This upward trend in earnings estimates has helped QUAD earn a Zacks Rank of #1 (Strong Buy), further reinforcing its appeal.

Research shows that the momentum effect is particularly strong among Zacks Rank #1 and #2 stocks. As analysts revise their earnings forecasts upward, more investors tend to take notice, driving the stock price higher. This dynamic creates a positive feedback loop that can lead to sustained gains.

Valuation Considerations

Despite its strong momentum, QUAD is currently trading at a reasonable valuation. One key metric used to assess this is the Price-to-Sales ratio. QUAD is currently trading at 0.13 times its sales, meaning investors are paying only 13 cents for every dollar of sales. This makes the stock relatively inexpensive compared to its revenue, offering potential for significant upside.

Given its combination of strong momentum, positive earnings outlook, and attractive valuation, QUAD appears to be a compelling investment opportunity. It offers the potential for rapid growth without requiring investors to pay a premium for its performance.

Other Opportunities and Tools

While QUAD is a standout example, there are other stocks that also meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen. Investors can explore these options to diversify their portfolios and find additional opportunities.

For those interested in refining their stock-picking strategies, the Zacks Premium Screens offer over 45 different tools tailored to various investment styles. These screens are designed to help investors identify stocks that have the potential to outperform the market.

Additionally, the Zacks Research Wizard provides a powerful platform for backtesting investment strategies. By analyzing historical performance, investors can gain confidence in their approach and make more informed decisions.

By combining momentum, valuation, and earnings analysis, investors can develop a well-rounded strategy that increases the likelihood of success in the stock market.