Years ago, I heard Leon Cooperman, widely viewed as a legendary investors, say that there are two types of stock investors: those who like to find stocks to buy that are rising and those who like to buy equities on weakness. Usually, I’m in the latter group.
Once in a while, however, I do like to purchase equities as they’re rising. Consequently, I know a few methods of determining which stocks to buy that are on the cusp of major moves higher in the short-and-medium terms.
An important rule for momentum investors is pretty obvious: Stocks that have gone up recently are, all else being equal, likely to continue doing so for a while longer. That’s particularly true of those names that have climbed despite declines in the stock market.
Additionally, equities that have advanced significantly on above-average trading volumes and those that have surpassed their key moving averages are likely to continue climbing.
Although I’m not a big fan of charts, I do consider equities that have shown an inverted head-and-shoulders pattern or have had one recently and kept rising as good stocks to buy.
When I put on my “momentum trading hat,” I like to buy sectors and/or stocks the Street likes. Finally, as always, I like to find stocks to buy whose companies have good fundamentals.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG), which markets hydrogen-powered forklifts and is becoming a leading global producer of green hydrogen, has certainly benefitted from recent climate legislation. Since July 27 the shares shot up roughly 60%, versus the S&P 500’s slight decline during the same period.
Plug’s shares are well above their 50-day of $24.42 and their 200-day moving average of $23.46.
Over the last six months, PLUG stock has clearly formed a reverse-head-and-shoulders pattern. Meanwhile, since mid-July, the shares’ daily trading volume has routinely exceeded 20 million. That was a fairly unusual occurrence in June.
PLUG is very well-positioned to benefit from many governments’ embrace of green hydrogen and from the hydrogen tax credit for hydrogen within the energy and health bill.
SunPower (NASDAQ:SPWR) stock has rallied very sharply since the end of July, jumping nearly 65%. SPWR specializes in selling solar panels to homeowners.
SPWR stock is currently well above its 50-day of $22.33 and its 200-day moving average of $19.70. Moreover, the shares have, like PLUG, formed a reverse head-and-shoulders pattern.
On the fundamental front, the deployment of rooftop solar panels has been very strong this year in the U.S. and Europe. With government policies becoming more friendly to residential solar in both regions, that trend should only accelerate.
Rivian (NASDAQ:RIVN) stock has exploded 84% higher since the end of May. During the same period, the S&P 500 was down slightly. Rivian makes and sells electric trucks.
Rivian trades above its 50-day moving average of $34.60, but is still meaningfully below its 200-day moving average of $49.19.
On the daily volume front, Rivian never exceeded 30 million shares on any day between May 17 and August 1. Conversely, its volume has been above that level on four days between since Aug. 2 including a huge trading day on Sept. 16, when 70.4 million shares of the stock changed hands.
As far as fundamentals are concerned, the EV maker’s partnership with Daimler’s Mercedes-Benz, announced on Sept. 8, looks to be a game-changer. In addition to giving RIVN another partner with deep pockets (along with Amazon (NASDAQ:AMZN)), the deal increases Rivian’s respectability. The agreement also provides Rivian with an important foothold in the large European auto market.
Luckin Coffee (LKNCY)
Luckin (OTC:LKNCY) stock has jumped 38% since July versus the S&P 500’s gain of less than 2% during the same period. Unsurprisingly, the shares were trading well above their 50-day and 200-day moving averages of $15.29 and $11.57, respectively.
The company owns and operates hundreds of coffee shops and a coffee delivery business in China.
Since June, Luckin’s trading volume has picked up noticeably. Prior to that month, its daily trading volume rarely exceeded 2 million shares; since that month, the metric has gone over 2 million shares quite regularly. Before June, its volume was frequently below 1 million, and since June 1, that phenomenon has occurred fairly rarely.
On the fundamental side, the company’s balance sheet has greatly improved, as LKNCY “fully redeemed $110M worth of senior notes to help it reduce its interest cost” on Aug. 26. The move indicates that the company’s financial position is relatively strong, while it’s upbeat on its own longer-term outlook.
Reacting to this development, Quo Vadis Capital analyst John Zolidis wrote that Luckin now has very little debt, and he expects it to have about $1 billion cash as of the end of 2022.
Netflix (NASDAQ:NFLX) has jumped about 45% in May while the S&P 500 fell by less than 1% during the same period.
As of the market close on Sept. 19, NFLX stock was trading above its 50-day moving average of $224.42, but well below its 200-day moving average of $324.02.
Turning to fundamentals, the Street is excited about the company’s decision to launch an ad-supported tier for the first time next year.
On Sept. 19, Oppenheimer analyst Jason Helfstein upgraded NFLX stock to “outperform” from “perform.” The analyst thinks that the move will cause the company’s subscribers and average revenue per user to jump while decreasing the number of people who give up the service.
Enphase (NASDAQ:ENPH) stock has jumped about 130% since May, versus a decline of less than 1% for the S&P 500 during the same period, making it one of the best stocks to buy on the upswing.
Enphase sells inverters and energy storage solutions used in conjunction with solar energy deployments.
From May 4 to July 20, ENPH stock completed a reverse-head-and-shoulders pattern, and the shares have continued to climb upwards subsequently. On the fundamentals front, in Q2, the company’s U.S. revenue surged 66% year-over-year, while its sales in Europe soared a very impressive 89% year over year.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) stock has soared 125% since May, while the S&P 500 fell less than 1%. Between June 3 and July 26, FSLR stock completed a reverse head-and-shoulders pattern, and the shares have pretty much risen continuously since then.
First Solar makes and markets solar modules used in large-scale solar energy projects. The company “already has a solar module factory in Ohio, and it’s building another, large solar module plant in the state.”
As of the market close on Sept. 19, FSLR was trading well above its 50-day moving average and its 200-day moving average of $106.48 and $83.92, respectively.
On the fundamental side, the company is exceptionally well-positioned to benefit from strong incentivization for the domestic manufacturing of solar panels in the energy law.
On the date of publication, Larry Ramer owned shares of Plug Power, Rivian, and Luckin.