Chasing momentum without putting in the homework can be a dangerous game. Just ask the many new investors who chased speculative and unprofitable tech stocks to their peak in 2021! Though momentum plays may warrant some caution, I think investors should not fear momentum itself, especially if there are good reasons behind a rally.
Remember, not every sudden stock surge is indicative of severe overvaluation or bubbly conditions. Sometimes, a rally can hold up and even add to the gains posted. And, of course, other times rallies can end in a painful plunge, punishing those who bought after a sizeable upside move.
In this piece, we’ll consider two stocks that have been really heating up over the past few months but remain pretty enticing from a valuation perspective. As each firm looks to post better results in the future against what I view as modest expectations, I believe the path of least resistance may actually be higher.
When you consider the rocky road that led up to last week’s run, I think such moves aren’t exactly destined for a painful correction. Though they can be, as markets remain an unpredictable beast over the near term! In any case, the following two stocks are worth stashing on the radar.
Without further ado, consider shares of Boyd Group Services (TSX:BYD) and goeasy (TSX:GSY).
Boyd Group Services
Boyd Group is an operator of auto-body repair shops across North America. The stock got absolutely crushed back in late 2021 and early 2022, as shares lost more than half of their value from peak to trough. It’s never easy to recover after a 50% haircut. What I find remarkable about Boyd is how fast shares have surged since bottoming out back in mid-2022. The stock is up a whopping 88% and looks on track to hit 2021 highs again. Talk about a swift recovery.
Over the past six months, shares are up around 16%. The upward momentum has since slowed, but I still find the name to be fairly priced relative to the long-term growth you’ll get. As more cars hit the road, demand for Boyd’s services could continue to be robust.
With terrific managers aboard and past-year momentum, I think BYD is one of the hot stocks that still has the wheels to keep rolling higher. At 1.45 times price to sales, BYD stock still looks quite cheap in my books. Should shares pullback a bit, I’d give the name a more serious look.
goeasy is an alternative financial service firm that seems ready to move on from its painful decline from its 2021 highs. Unlike Boyd, goeasy is closer to its two-year lows than its highs.
Last week, the stock popped on a very solid first-quarter earnings report. At writing, shares are up a whopping 19.2% over the past week alone. Though a sizeable move, shares are still off just north of 50% from their all-time highs. Recent momentum is remarkable, but the longer-term trend isn’t as encouraging. I think it still needs a few more big days before the rest of the market considers its a serious recovery play.
It may be a long way to the top, but if the latest quarterly beat ends up being the start of a trend, I’d look for GSY stock to flex its muscles in the second half of 2023.