2 Momentum Stocks for "All or Nothing Days"

09/10/2015 9:28 am EST


Matt McCall

Founder and President, Penn Financial Group

The recent stock market volatility is rare and has been measured by "all or nothing days," so Matt McCall, of Penn Financial Group, highlights two stocks that have the momentum behind them during a volatile market environment.

The stock market has been on a wild over the last few weeks, and until the Federal Reserve meets on September 17, there does not appear to be any respite for investors. According to Bespoke Investment Group, the recent volatility is rare and they have measured it by “all or nothing days.” An all or nothing day is when the daily advance/decline line on the S&P 500 (SPX) is either above 400 or below negative 400. In simple terms, when at least 80% of the stocks in the index are higher or lower on any given day, it is considered “all or nothing.”

The last two times this occurred was during the financial crisis in November 2008 and the last market correction in October 2011. Both times the market was higher by 25% one year later. Within six months the market was also higher, but only by 2.5% in 2008 and 20% in 2011.

The point is that often times heavy volatility will lead to buying opportunities for investors willing to look out at least six to 12 months. And this time should not be any different than the past as far as future performance. That being said, there are two ways to play the volatility: buy the underperformers or stick to relative strength and the momentum stocks.

One momentum stock that has been able to remain in both a long-term and short-term uptrend—with a gain of 48% this year—is Civitas Solutions (CIVI). The company provides home and community based health and human services to individuals with mental and physical disabilities. The niche $931 million company also has solid earnings behind the strong uptrend. Last year CIVI earned $0.09 per share and this year the estimates are for $0.62 per share. The growth continues into 2016 with earnings per share expected to jump another 46% to $0.90.

Another momentum stock to take a look at is Carrols Restaurant Group (TAST). The $498 million company is up 67% this year and recently hit the highest level since 2012. The company operates as a Burger King restaurant franchisee in the United States with over 650 locations. On the financials side, the company has been losing money for years, but they are expected to earn $0.22 in 2016 and increase that by another 73% in 2017 to $0.38 per share. While the restaurant craze has slowed over the last few months, there have been a handful stocks able to outperform and TAST is one of the winners.

When it comes to playing momentum stocks, the biggest risk is when the stock runs out of gas. As soon as the momentum players exit, it happens quickly and stocks tend to drop dramatically. That being said, both stocks mentioned are increasing earnings at a rapid pace and they have the momentum behind them during a volatile market environment.

Matt McCall, Founder and President, Penn Financial Group

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