Strategy focuses on U.S. large caps with upward price momentum

What are we looking for?

U.S.-listed stocks that are showing positive price momentum over multiple time frames.

The screen

This week, we used Trading Central Strategy Builder to search for U.S large-cap stocks that have demonstrated strong upward price momentum and have been outperforming the broad S&P 500 index all year.

We began by setting a minimum market cap threshold of US$30-billion. This focuses our search on large cap U.S stocks that tend to have more price stability in a volatile market.

Next, we use four metrics commonly used by trend-following traders. A trend-following strategy looks for stocks indicating upside price momentum; it also means buying stocks at or near their all-time or 52 week highs. Here are the metrics:

• The stock must be within 10 per cent of its 52-week high;
• 13-week price performance must be greater than 10 per cent;
• Year-to-date price performance must be at least 20 per cent;
• 52-week price performance must be positive.

Finally, we scanned for the top-ranked stocks using Trading Central’s Quantamental rating method. The TC Quantamental Rating is a proprietary stock ranking methodology that covers more than 50,000 stocks worldwide. This metric ranks stocks on a scale of one to 10, with 10 being the most bullish. TC Quantamental ranking uses a combination of valuation, growth, quality, price momentum and income as key metrics when ranking a company. We set a minimum ranking of six out of 10.

We have also included the price-to-earnings ratio, and dividend yield for your reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

U.S.-listed large caps with positive price momentum

Of the 10 companies that made our list, six are in the health care sector. The Health Care Select Sector SPDR Fund ETF (XLV) happens to be within 3.8 per cent of its record high set back on April 8.

Drug manufacturer Eli Lilly and Co. has the largest market cap on our list at US$345.4-billion. The stock is trading within 3.1 per cent of its 52-week high, which was set at the beginning of December. The stock has been in a well-established uptrend that began in January, 2021, and which shows no signs of ending any time soon.

Biopharmaceutical company AbbVie Inc. has the second-highest TC Quantamental Rank on our list at 7.4, which is considered very high. The stock price is within 6.3 per cent of its 52-week high. The stock happens to have the highest dividend yield on our list at 3.6 per cent.

Topping our list is Aflac Inc. While not in the health care sector, Aflac is a holding company in the supplemental health and life insurance business. The stock broke out above its previous record high set back on April 21 at the US$67 price level. Despite trading within 3.2 per cent of its record high, the stock has the lowest P/E on our list at 9.0, well below the average P/E of the life and health insurance subsector, which sits at 14.3.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an annualized total return of 12 per cent compared with 8 per cent for the S&P 500.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.