This is the first of a recurring monthly feature in which we will look at and analyse the top momentum stocks in the NASDAQ100. The NASDAQ100 is one of the best performing indices of the last decade, including the Magnificent Seven.
1. Understanding Momentum Qualification
Momentum investing focuses on identifying stocks that are on a consistent upward trajectory. For this article, we analyze stocks in the NASDAQ 100 with the highest price increases over three key periods:
- Last 12 months: Long-term momentum performance
- Last 6 months: Medium-term trend strength
- Last 3 months: Recent surges indicating short-term momentum
This multi-layered analysis ensures a balanced view of sustained and accelerating growth, narrowing down the top candidates for the month.
2. The Idea Behind Momentum Investing
Momentum investing is grounded in a simple yet powerful principle: stocks that have performed well in the past are more likely to continue performing well in the near future. This strategy capitalizes on market psychology, where optimism and bullish sentiment drive prices higher.
By understanding momentum, retail investors can:
- Ride the upward trend until signs of reversal
- Reduce exposure to stagnant or declining assets
- Enhance portfolio returns with strategic timing
3. The Top Momentum Stocks This Month
1. Axon Enterprise, Inc. (AXON)
- Sector: Technology
- 12-month price increase: +133%
- 6-month price increase: +105%
- 3-month price increase: +65%
- Company profile: Axon develops public safety technologies, including TASER devices and cloud-based software for law enforcement agencies.
- Key financials: Axon earned 1.94B in revenue over the last 12 months with quarterly revenue growth of 31.70% and a 9.30% in earnings.
- Latest news: Newcomer to the NASDAQ 100, Axon joined the index on December 23, 2024, due to its growth in the past month. Latest financial updates surpassed analyst
- expectations.
2. Booking Holdings Inc. (BKNG)
- Sector: Consumer Discretionary
- 12-month price increase: +41%
- 6-month price increase: +26%
- 3-month price increase: +15%
- Company profile: Booking Holdings operates leading online travel brands, including Booking.com and Priceline.
- Key financials: Booking announced revenues of 23.05 billion over the last 12 months, an increase of 8.90% year on year, while earnings remained stable over the period, unable to keep pace with revenues due to extensive investment.
- Latest News: Booking Holdings has experienced a rebound in travel demand, contributing to strong financial performance in recent quarters. The company continues to invest in technology and marketing to enhance user experience and expand its global reach.
3. Netflix, Inc. (NFLX)
- Sector: Communication Services
- 12-month price increase: +85%
- 6-month price increase: +33%
- 3-month price increase: +21%
- Company profile: Netflix is a global leader in streaming entertainment with a focus on original content.
- Key financials: Netflix was able to achieve a quarterly revenue growth of 15% (37.59B ttm) despite the increased fragmentation of the streaming market and a stunning 40.90% earnings growth over the last quarters.
- Latest News: Netflix has been investing heavily in original content, aiming to attract and retain subscribers amid increasing competition in the streaming industry. The company reported a significant increase in global subscribers in its latest earnings report (14% over in Q3 to a total 282M subscribers), indicating robust demand for its streaming services.
4. T-Mobile US, Inc. (TMUS)
- Sector: Communication Services
- 12-month price increase: +38%
- 6-month price increase: +25%
- 3-month price increase: +6%
- Company profile: T-Mobile is a major wireless carrier known for its customer-friendly services and nationwide 5G network.
- Key financials: T-Mobile US increased their revenue by just 4,7% in the last quarter yoy to 80.01B in total, but was able to grow their earnings by 42,80% in the same time.
- Latest News: T-Mobile continues to expand its 5G network coverage across the United States, aiming to enhance service quality and attract more customers.The company reported strong customer additions in the recent quarter, reflecting effective marketing strategies and competitive pricing.
5. Fortinet, Inc. (FTNT)
- Sector: Technology
- 12-month price increase: +63%
- 6-month price increase: +58%
- 3-month price increase: +18%
- Company profile: Fortinet specializes in cybersecurity solutions, including firewalls and network security systems.
- Key financials: In this month’s list it is one of the smaller companies in terms of revenue with 1.73 billion and a growth of 13% over the last quarter, Fortinet was able to grow its earnings by more than 67% over the same period, one of the fastest growing companies in terms of earnings.
- Latest News: Fortinet has been highlighted as a leading stock near buy points, indicating strong market confidence in its business model and growth prospects.The company provided three- to five-year financial targets, with expectations that billings and revenue will grow at a 12% compound annual growth rate, slightly above analyst predictions.
4. Optimizing Your Momentum Portfolio: The Efficient Frontier Approach
Investing in momentum stocks can yield significant returns, but the key to maximizing your gains while minimizing risk lies in optimal portfolio allocation. This is where the concept of the efficient frontier comes into play.
What is the Efficient Frontier?
The efficient frontier, derived from Modern Portfolio Theory (MPT), is a curve that represents the best possible combinations of assets that offer the highest expected return for a given level of risk. In simple terms, it helps you find the “sweet spot” between risk and reward.
Why Use Portfolio Optimization?
Momentum stocks, while promising, often exhibit higher volatility. By applying an efficient frontier approach, you can:
- Maximize Returns: Allocate more weight to stocks with higher risk-adjusted returns.
- Minimize Risk: Diversify your portfolio to reduce exposure to any single stock or sector.
- Achieve Balance: Optimize the trade-off between risk and potential gains.
How It Works with January’s Picks
Using this month’s five momentum stocks—Axon Enterprise (AXON), Booking Holdings (BKNG), Netflix (NFLX), T-Mobile US (TMUS) and Fortinet (FTNT) ,—you can apply the efficient frontier approach to determine how much to allocate to each stock. Here’s a simplified process:
- Calculate Expected Returns: Analyze historical performance to estimate future returns for each stock.
- Assess Risk: Measure the volatility (standard deviation) of each stock and their correlations.
- Optimize Weights: Use optimization tools or software to find the allocation that places your portfolio on the efficient frontier.
Example Benefits
For instance, combining high-growth stocks like Netflix with steadier performers like T-Mobile US may reduce overall portfolio volatility while retaining high return potential.
5. How to Use This Strategy to Your Advantage
Momentum investing can be a valuable tool for retail investors. Here’s how you can incorporate it into your portfolio strategy:
- Diversify Momentum Picks: Avoid putting all your funds into a single stock. Diversify across sectors to mitigate risk.
- Monitor Regularly: Keep track of performance and exit positions if momentum shows signs of fading.
- Combine with Fundamentals: Use momentum as a filter but validate choices with strong financials and a solid growth outlook.
- Stay Disciplined: Set stop-loss limits to protect against unexpected downturns.
- Short Term: This approach pursues a more short-term investment strategy with a holding period of one to three months, for example.
Final Thoughts
Momentum investing in the NASDAQ 100 offers exciting opportunities for retail investors. By focusing on stocks with a proven track record of growth, you can align your portfolio with market leaders. Integrating portfolio optimization through the efficient frontier can enhance your returns while managing risk. Keep an eye out for our next month’s Top 5 picks and continue to leverage momentum to achieve your financial goals.
Disclaimer
This article is an example of how to use different approaches to invest in the stock market. It is not financial advice and is intended solely for educational purposes.
