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Are You Looking for a Top Momentum Pick? Why Semtech (SMTC) is a Great Choice

Does Semtech (SMTC) have what it takes to be a top stock pick for momentum investors? Let's find out.

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This story originally appeared on Zacks

Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.

- Zacks

Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.

Below, we take a look at Semtech (SMTC), which currently has a Momentum Style Score of A. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.

It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Semtech currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.

You can see the current list of Zacks #1 Rank Stocks here >>>

Set to Beat the Market?

In order to see if SMTC is a promising momentum pick, let's examine some Momentum Style elements to see if this chipmaker holds up.

Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.

For SMTC, shares are up 11.07% over the past week while the Zacks Semiconductor - Analog and Mixed industry is down 0.57% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 19.69% compares favorably with the industry's 3.27% performance as well.

While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Shares of Semtech have increased 16.28% over the past quarter, and have gained 40.88% in the last year. In comparison, the S&P 500 has only moved 7.3% and 33.51%, respectively.

Investors should also pay attention to SMTC's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. SMTC is currently averaging 430,566 shares for the last 20 days.

Earnings Outlook

The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with SMTC.

Over the past two months, 5 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost SMTC's consensus estimate, increasing from $2.41 to $2.55 in the past 60 days. Looking at the next fiscal year, 5 estimates have moved upwards while there have been no downward revisions in the same time period.

Bottom Line

Given these factors, it shouldn't be surprising that SMTC is a #1 (Strong Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Semtech on your short list.



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