In his latest column for Canada’s Globe and Mail, Validea CEO John Reese looks at stocks that have both value and momentum on their side.
“Don’t chase hot stocks. If you’re a serious investor, you’ve probably heard this piece of wisdom hundreds of times,” Reese writes. “And generally it’s good advice — but incomplete. The full version should be: ‘Don’t chase hot, expensive stocks.’”
Reese says the distinction is a key one. “High-flying, overpriced stocks often lose steam and plummet to the ground,” he says. “But high-flying inexpensive stocks can continue to fly high for some time — and they don’t have as far to fall if their momentum wanes. Used properly, momentum can be a big help in choosing which stocks to buy.”
As an example, he looks at his Motley Fool-based portfolio, which is inspired by the writings of Fool creators Tom and David Gardner. His U.S.-based Fool portfolio, which uses both value and momentum metrics to pick stocks, has gained more than 13% annualized since its 2003 inception, vs. less than 4% for the S&P 500.
Reese looks at a trio of Canadian stocks that get approval from his Guru Strategies (each of which is based on the approach of a different investing great) and have both momentum and value on their side. Among them: Dorman Products.