3 Momentum Stocks That Are Still Cheap

A new report shows that momentum investing works. With that in mind, the odds are in your favour with these names.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The idea of buying a stock just because its price has increased in the past seems ludicrous. But so-called momentum investing has consistently been shown to outperform, as detailed in a new report released this month. In other words, stocks that have been going up in the past are more likely to keep going up than stocks that have lagged.

There is a problem with momentum investing, and that is the risk of paying too much. So with that in mind, below are three stocks that have done well recently, but are still cheap.

1. Canadian Natural Resources

There’s no better place to start than with one of Canada’s largest energy producers, Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ). The past year has been very good for most energy companies, but CNRL has performed especially well, with its shares returning 41% over the past 12 months.

Still, the shares only trade at about the value of the company’s existing reserves (discounted at 10% after tax). For a company with CNRL’s track record, that is a nice bargain. The oil price assumptions used in valuing the company’s reserves are very conservative. If CNRL continues to execute as it has done in the past, then it will vindicate momentum investors.

2. Bank of Nova Scotia

The past year has also been very good to Canadian banks. Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) is no exception; its shares have returned nearly 20% over the past year. But this return still hasn’t been as high as its peers, largely due to the bank’s emerging markets exposure.

Today, the bank trades at less than 13 times earnings, despite having tremendous growth opportunities in emerging markets, particularly Latin America. Of all the Canadian banks, Bank of Nova Scotia’s shares are probably the best deal right now — even though you won’t be getting as much momentum as you would with one of the other bank stocks.

3. Manulife Financial

If you had bought shares in life insurer Manulife Financial (TSX: MFC)(NYSE: MFC) a little less than two years ago, you would be laughing; the shares have doubled since then. But there’s still a strong argument that the shares are cheap.

First of all, the company trades at barely 10 times forward earnings. Secondly, Manulife should benefit in the longer term when interest rates return to normal levels. Most of the company’s investment assets are held in fixed income securities — this means the company must accept minimal yield on its investments for now.

Manulife also has plenty of opportunities to expand internationally. The company is even entering the Myanmar region again. If Manulife is successful in these efforts, then momentum investors stand to record a healthy profit.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Pixelated acronym REIT made from cubes, mosaic pattern

Beginner Investors: Get Passive Income by Investing in REITs!

You can get passive income by investing in REITs like Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »

A close up image of Canadian $20 Dollar bills

3 Top Stocks You Can Still Buy for Under $20 a Share

While these three Canadian stocks trade undervalued and below $20 a share, they are easily some of the top investments…

Read more »

Dots over the earth connecting the world
Dividend Stocks

3 of the Top-Growing Stocks on Earth

Market volatility remains high in Q3 2022, but it’s easy to identify the top-growing stocks on Earth.

Read more »

Profit dial turned up to maximum
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy for TFSA Passive Income and Total Returns

This cheap Canadian energy stock provides an attractive dividend yield for TFSA passive income and a shot at some big…

Read more »

money cash dividends
Dividend Stocks

Want Passive Income? 1 TSX Stock for $8/Day in Dividends

If you need cash right away, then this TSX stock can make you passive income from a stable dividend that…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

Canadian dividend stocks make for great long-term buy-and-hold investments.

Read more »

value for money
Dividend Stocks

3 Incredibly Cheap Dividend Stocks to Buy for Dependable Passive Income

Now is an excellent time to load up on Canadian dividend stocks. Here are top picks that are all trading…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Simple TSX Stocks to Buy With $25 Right Now

Canadians with capital of as low as $25 can purchase three simple stocks right now and earn recurring passive income…

Read more »