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Investors Should Buy Stocks with Earnings Momentum and Lagging Price Momentum, Says Evercore ISI Analyst
The Current Market and Historical Momentum
Julian Emanuel, a senior managing director at Evercore ISI, believes that it is time for investors to buy stocks with strong earnings momentum but lagging price momentum. He advises investors to remain fully invested, as the current market shares characteristics with past historical momentum markets in 1995, 1999, and 2017. Emanuel warns that the relentless rally in the market makes it just as dangerous to be underinvested as it is to be overexposed. However, he does not expect the rally to continue until the end of the year, as his firm predicts a recession starting in the fourth quarter.
Names with Earnings Momentum
Emanuel recommends a group of stocks that have superior earnings momentum compared to their peers. These stocks have lagging price momentum since the March inflection to maximum momentum. According to a note from Evercore on July 23, these "earnings mo to price mo" stocks are expected to outperform as price momentum leaders cool off. Evercore gives an outperform rating to the following stocks: Splunk and Workday in the information technology sector, Deere & Co in industrials, Cheniere Energy in energy, Alnylam Pharmaceuticals in healthcare, Pinterest in communication services, and Eversource Energy in utilities.
The Future of Cloud Stocks
Emanuel is bullish about the long-term future of cloud businesses, despite expecting some choppiness in the short term. While revenue growth at cloud businesses slowed earlier this year due to corporate slowdowns, the buzz around artificial intelligence could potentially provide a boost. Emanuel believes that the long-term story for cloud businesses is exceptionally robust, particularly due to the expected productivity boost from China. However, he cautions that in the short term, many of these cloud stocks may be overextended and advises investors to exercise caution.
In conclusion, the advice from Evercore ISI analyst, Julian Emanuel, to invest in stocks with earnings momentum but lagging price momentum can have implications for new businesses. For entrepreneurs and startups, this approach highlights the importance of focusing on building a solid foundation of strong earnings growth rather than solely chasing short-term price gains.
By prioritizing earnings momentum, new businesses can distinguish themselves as attractive investment opportunities. This means putting efforts into generating consistent and sustainable revenue streams, improving profitability, and demonstrating strong market potential. Investors are increasingly looking for companies with a track record of delivering solid financial results and growth prospects. Therefore, new businesses that can showcase their earnings momentum may have a better chance of attracting investment and support.
Moreover, Emanuel's bullish outlook on the long-term future of cloud businesses suggests that new ventures operating in this sector could benefit from industry trends. The potential productivity boost from China and the growing interest in artificial intelligence present an opportunity for cloud-based startups to thrive. However, it is crucial for new businesses to remain cautious in the short term due to potential market volatility and overextension in cloud stocks. Careful planning and strategic decision-making will be essential to navigate these challenges successfully.
Overall, the advice to prioritize earnings momentum aligns with the notion that sustainable growth and profitability are key to attracting investment. New businesses should aim to demonstrate their earnings potential, especially in promising sectors like cloud technology. By adopting a long-term perspective and exercising caution in the short term, entrepreneurs can position their ventures as attractive opportunities for investors.
Article First Published at: https://www.cnbc.com/2023/07/26/evercores-emanuel-names-stocks-set-to-outperform.html.svg)
