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In this newsletter:

  • 5 headlines that pretty much sum up the week
  • How this one deli in New Jersey has a market cap of $100 million
  • Investing guide for momentum stocks and ETFs
  • Our rec of the week

Five headlines that sum up the week

1. AMC is having a solid week

With no news in sight for this theater company, the only explanation offered for this sudden rise is the optimism that normalcy will soon return to the masses. According to the CDC, 40% of the U.S. has already received their first vaccine dose – 26% have received both rounds of vaccines. Will this stick? It’s been a meme stock favorite amongst Redditors, so only time will tell.

2. Peloton will not recall its treadmill anytime soon

After 39 accidents and a death of a child, Peloton has been urged by the Consumer Product Safety Commission to recall The Peloton Tread+ Treadmill. Sold for $4,300 a pop, this move could cost the company millions. At this time, the company isn’t budging on its decision to not recall its product. This could result in new legislation. House Democrats have drafted a new bill that would make the process easier for the CPSC to warn people about unsafe products.

3. Mattel blows through earnings with huge quarterly sales results

Mattel is making a massive comeback, all thanks to the renewed interest in Barbie and Hot Wheels. Worldwide sales for Barbie surged by 87% to more than $276 million – Hot Wheels saw a 16% jump to $171.6 million. Mattel wasn’t in the best shape a few years ago, but with parents spending more time at home, and stimulus checks going to new toys, the company now expects revenue to increase by 6% to 8% this year.

4. Apple is coming after Spotify with app redesign and subscription offering

It’s no secret that Spotify has been pouring money into its Podcast division. In February, the number of podcasts on Spotify tripled. After a report predicted that Spotify will soon surpass Apple Podcasts, Apple decided to do something about it. WIth a new app interface and additional features such as Channels and Smart Play, Apple is also introducing its own version of a subscription service that includes ad-free listening and early access to episodes. Like Spotify, there will be an option to listen to free podcasts.

5. Amazon opens shop in London… and it’s a hair salon

Amazon’s latest venture is in the form of a hair salon. But this isn’t any ordinary hair salon – it’s fully equipped with augmented reality that allows customers to “try on” styles and colors before taking the ultimate plunge. The company currently has no plans to open more locations and considers this to be “an experiential venue where we showcase new products and technology.”

ICYMI: There is a deli in New Jersey that is currently valued at $100 million in the stock market.

Your Hometown Deli, a small New Jersey deli in Paulsboro, has a market cap of over $100 million. To be clear, this is the only location in existence. It is currently traded on the stock market as Hometown International under the ticker symbol HWIN. 

Last year, Hometown International reported over $600,00 in expenses. It also reported $2.2 million in net cash gains from finance activities like selling stock. The company sold 2.5 million shares and has about 60 shareholders total. The majority shareholder is a wrestling coach from a local high school. 

Hometown International is an example of penny stocks that retail investors are becoming increasingly interested in. Usually, over-the-counter stocks are considered extremely risky and difficult to profit from. 

With special interest acquisition companies emerging and a new breed of investors joining the market, it is clear that the pandemic has caused a major shift in how people invest.

Not saying that you should, shares of HWIN can be bought right now for less than $13 a share. After all, in the last two years combined, the deli only made $35,748 in sales.

What momentum investing is

TL;DR

  • Momentum investing is a technical trading strategy that involves buying rising securities to sell at peak performance and selling (or short selling) losing securities
  • You can identify momentum stocks by a set of technical indicators, such as moving averages and trend lines, or invest in managed momentum ETFs
  • While momentum investing has been shown to meet or outperform investing benchmarks on paper, real-world gains are often reduced by investing costs, time spent researching, and long-term market performance

Momentum investing: what is it?

Momentum investing is one of the more technical trading strategies, as it involves seeking out securities that under- or over perform against the broader market. 

The goal is to determine a security or fund’s price momentum and capitalize on continuing trends with indicators such as:

  • Trend lines: lines drawn between two points on a price chart to determine a stock’s overall direction
  • Moving averages: lines that enables traders to determine a stock’s overall movement while minimizing background noise from small, ultimately insignificant fluctuations
  • The Average Directional Index (ADX): a popular momentum indicator that calculates the expansion or contraction of a security’s price range over time to determine the existence and strength of a trend.

This is a five-year overview of Apple stock including price (blue), simple moving average (black), exponential moving average (green), and Average Directional Index (bottom line graph).

Momentum investors seek to rack up profits in short-term increments, rather than in the long haul – an investor may hold a stock for anywhere from 2 months to 3 years before selling, compared to a long-term investor who may hold for decades.

  • An investor will see long-term profits by adding high-performing securities as they rise and selling once they start losing value
  • Based on the assumption that some stocks are over- or undervalued, leaving room for investors to profit off price discrepancies
  • Instead of selling your highest-performing securities, you buy more of them, while selling off any assets that drop in price

The pros and cons of momentum investing

On paper, momentum investing has been shown to meet or outperform benchmarks and markets worldwide. 

For example, the MSCI USA Momentum Index – which tracks stocks with rising prices – outperformed the S&P 500 nine times between 2007 and 2020. It also outperformed its parent index, the MSCI USA Index, nine times in the same period.

MSCI USA Index and MSCI USA Momentum Index cumulative and annual performance, 2007-2020. Image Credit: MSCI

However, even the best-performing momentum funds aren’t always successful over the long term. Here, we can see MTUM’s 10-year performance against the S&P 500 500 ETF Trust (SPY), NASDAQ Composite Index (COMP), and NASDAQ 100 Index (NDX):

10-year performance of MTUM (blue), SPY (black), COMP (green) and NDX (orange). Image Credit: MarketWatch

Long-term momentum ETF performance is one reason some momentum investors turn to individual stocks, rather than managed momentum funds. But there are many downsides to this strategy.

  • Involves a lot of short-term trade strategies, such as shorting stocks or day trading
  • Can come with higher trading costs than a buy-and-hold strategy
  • Timelines can be incredibly short – days or weeks, instead of years
  • Future fortunes may slip through your fingers if you don’t keep a finger on which stocks are charging a bull run and which are falling behind the market

Big names in momentum investments

Stocks that fall under the “momentum” umbrella tend to change over time as trends and prices shift. 

One easier way to get involved with momentum securities is to invest in a momentum-based ETF, such as:

  • The iShares Edge MSCI USA Momentum Factor ETF (MTUM): tracks the MSCI USA Momentum Index and invests in over 100 securities across multiple sectors on a market-cap weighted basis
  • The Invesco DWA Momentum ETF (PDP): currently the second-largest high momentum which includes around 100 U.S. companies
  • The SPDR Russell 1000 Momentum Focus ETF (ONEO): tracks the Russell 1000 Momentum Focused Factor Index, making it a well-diversified, multi-cap ETF.

For those investors who prefer to handpick their stocks – without running a full analysis themselves – another way to get involved with momentum securities is to examine which stocks comprise momentum indices and ETFs.

For instance, the top 10 constituents of the MSCI USA Momentum Index are as follows:

  • Tesla
  • Microsoft
  • Apple
  • Amazon
  • NVIDA
  • PayPal
  • Adobe
  • Thermo Fisher Scientific
  • Alphabet A stock (Google)
  • Alphabet C stock (Google)

While many of these securities fall into other categories as well (primarily tech and growth stocks), they can all be classified as momentum securities by standard technical indicators.

The bottom line

Due to its technical nature, momentum investing is not as well-known or popular as a value or growth strategy. Like all strategies, there are upsides and downsides. The easiest way to invest in momentum is by selecting an ETF. When momentum stocks are profitable, it’s because they rise quickly – but they can fall just as fast. 

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