China Moves Stimulate Markets: 4 Momentum Buys

The great fall of China blew the global markets last month, sending the major indices bouncing all over.

While the Shanghai Composite index plunged 15.3% over a one–month period from Aug 7 to Sep 8, the U.S. market was also in the red with the S&P 500 (GSPC), Dow Jones Industrial Average (DJI) and NASDAQ Composite (IXIC) down 5.2%, 5.1% and 4.6%, respectively.  

While concerns over the derailed Chinese economy and Fed rate hike speculations kept even the most stoic investor on the sidelines, yesterday's fiscal policy announcement by the Chinese government injected some optimism. All major Asian and domestic indices gained traction and rallied on the Chinese stimulus.

The Chinese stock market itself gained 2.9% and closed at 3170.45 on Sep 8. Back home, the S&P 500 climbed 2.5%, Dow Jones Industrial Average was up 2.4% and NASDAQ saw a 2.7% ascent driven by the stimulus.

Even today, the Shanghai Index has ended trading in green, rising 2.3% on hopes that the government measures will revive the country's dwindling economy

The Stimulus

The Ministry of Finance announced plans to solidify its fiscal policy, accelerate tax reforms and augment infrastructure expenditure, in an attempt to support the economy's revival. As part of these measures, the government intends to speed up construction projects, encourage public-private partnerships to sponsor private financing and standardize local debt management.

After enduring a major fall in imports in August, Chinese policy makers are giving their best shot to turn around the economy. Before introducing these fiscal measures, the Chinese central bank tried out several monetary policies to stem the market mayhem. We believe that a blend of these monetary and fiscal policies will support a recovery.

What Next?

The temporary quiver shouldn't discourage investors as the market is most likely to regain the vigor. In fact, the stock market cycle in itself gives us a good reason to invest in momentum stocks. Hence, investors should rather play it smart and play it right and make big bucks.  

Easier said than done? Not if you follow our formula.

Let's Make a Deal

First, check out the momentum style score. A favorable momentum style score indicates the suitable timing to enter a stock. Back-tested results show that stocks with Style Scores of 'A' or 'B,' when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) handily outperform other stocks. Finally, screen for stocks which managed a surge of 10% or more over the one-month period, when the market was shaky.  

We used the Zacks Stock Screener with the above criteria and zeroed in on these four stocks:

Best Buy Co., Inc. BBY

Headquartered in Richfield, MN, Best Buy operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores.

This Zacks Rank #2 (Buy) company soared 22.6% over the past 30 days. Also, its current year estimates shows an upside of nearly 5.9% to $2.68 per share over the same timeframe. Flaunting a momentum style score of ‘A', the company also shows a nice streak of earnings beat, with an average of 27.1% in the last four quarters.

Citi Trends, Inc. CTRN  

A value-priced retailer of urban fashion apparel and accessories for the entire family, Zacks Rank of #2 Citi Trends jumped 12.5% over the one-month time frame. The company has its headquarters in Savannah, GA.

Also, Citi Trends' current year earnings estimates have grown 18.8% over the past one month to $1.14 per share, positioning it for great earnings performances this year. The company sports a momentum style score of ‘A', which confirms its potential.

Culp, Inc. CFI

Culp, Inc. manufactures, sources, markets and sells mattress and upholstery fabric. This High Point, NC-based company has a momentum style score of ‘A'.

Moreover, the company has seen estimates grow by 4.8% to $1.75 a share, over the last 30 days. This Zacks Rank #1 (Strong Buy) stock rose 12.5% over the past one-month period ended Sep 7.

EZchip Semiconductor Ltd. EZCH

Yokneam, Israel-based EZchip Semiconductor is a fabless semiconductor company that provides Ethernet network processors for networking equipment.

Sporting a Zacks Rank #2 and a momentum style score of ‘A,' this company's stock price has soared about 38.2% over the past month. For the current year, analysts have turned bullish on EZchip Semiconductor in the last 30 days, increasing its estimates by an impressive 25.4% to 74 cents per share.

Bottom Line

There is momentum in every market. One just needs to know where to look for it. Don't let the shuddering markets scare you anymore. Rather, stay on your toes and make hay when the sun is shining.

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