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The unexpected spectacle of the stock market over the past year has left many in disbelief. Hedge funds, usually astute in such matters, faltered in positioning themselves for the remarkable year-over-year market escalation, consigning them to the role of mere spectators.
A multitude of stocks have emerged as heroes, delivering exceptional year-over-year returns that have outshone the market by a significant margin. While some have completed their race, a few momentum players are still in the running.
Given this backdrop, I have carefully selected three standout stocks that would undoubtedly give hedge funds a pang of envy. I am firm in my conviction that my choices embody the essence of momentum plays, striking a harmonious balance between past successes and future possibilities.
So, without any more delay, here are three superior performers worth considering.
Chipotle Mexican Grill (CMG)
Source: Retail Photographer / Shutterstock.com
Despite Bill Ackman’s Pershing Squared expressing bullish sentiments in late 2022, most hedge funds overlooked CMG (NYSE:CMG) stock prior to its recent upsurge. CMG stock has catapulted by nearly 80% year-over-year, positioning itself near the summit of momentum stocks. The stock’s relative strength index stands above 80, casting a shadow of uncertainty on the sustainability of CMG’s trajectory. Nonetheless, I am of the opinion that there is more room for growth ahead; here’s why.
Chipotle continues to exhibit robust growth in comparable store sales. The company’s fourth-quarter results showcased a year-over-year increase in same-store sales of 8.4%, coupled with an 80 basis point expansion in operating profit margin, enhancing shareholder value. Despite facing headwinds from diminishing consumer confidence, Chipotle’s sales growth remains impressive, affording it the flexibility to introduce up to 315 new restaurants in 2024. Furthermore, with a slowdown in global inflation year-over-year, Chipotle stands to benefit from reduced labor costs, evolving into a narrative of margin expansion.
Market watchers have raised concerns over Chipotle’s valuation metrics, such as the GAAP price-to-earnings ratio of 65.52x. Nevertheless, with an anticipated expansion in earnings per share exceeding 18% by year-end, it is reasonable to assert that CMG stock presents a compelling secular growth opportunity.
Netflix Inc. (NFLX)
Source: xalien / Shutterstock
Netflix’s (NASDAQ:NFLX) stock price has doubled in the past year. Admittedly, a broad-based surge in high-beta stocks played a pivotal role. However, key metrics point towards sustained growth for NFLX.
Evercore (NYSE:EVR) recently endorsed Netflix as a top momentum pick. Specifically, Evercore’s Mark Mahaney highlighted that “subscription and advertising-based video on demand continues to drive gross adds incrementality for Netflix and is increasingly becoming an anti-churn lever in the U.S.”
I share Mahaney’s optimism. Furthermore, another factor worth noting is Netflix’s formidable brand power, enabling it to venture into emerging markets like Asia, Latin America, and Africa. For instance, by 2026, Netflix is projected to capture 39% of Africa’s market share, diversifying its revenue streams. This expansion allows Netflix to scale its operations and fend off escalating competition in mature markets.
Netflix delivered a solid fourth-quarter earnings performance, surpassing revenue estimates by $120 million. Despite a minor earnings shortfall of 11 cents per share, Netflix’s forward price-to-earnings-growth ratio of 1.23x is currently at a five-year low. Hence, I categorize NFLX stock as a growth-at-a-reasonable-price (GARP) opportunity.
Limbach Holdings (LMB)
Source: shutterstock.com/CC7
Limbach Holdings (NASDAQ:LMB) is a discreet player in the realm of building systems solutions with vast potential. LMB stock has surged by over 1.6x in the past year, yet intriguingly, it remains undervalued. With a price-to-earnings-growth ratio of a mere 0.14x and a price-to-sales ratio of just 0.93x, LMB stock is attracting favor with options traders sporting a put/call ratio of 0.43.
I’ve presented Limbach’s quantitative metrics, but now, let’s delve into some fundamental aspects.
The company recently released a comprehensive earnings report. Limbach surpassed fourth-quarter revenue estimates by $13.32 million, with earnings per share exceeding expectations by four cents.
Furthermore, investors can anticipate increased capability as Limbach’s recent acquisition of Industrial Air is poised to augment annual revenue by $30 million. Limbach’s growth-through-acquisition strategy sets the stage for sustainable value creation for shareholders, adding appeal to its stock.
In essence, Limbach boasts robust fundamentals, attractive valuation metrics, and sturdy technical features. An enthusiastic thumbs-up for LMB stock!
As of the publication date, Steve Booyens held an indirect long position in NFLX. The views expressed in this article are those of the author and are in accordance with the InvestorPlace.com Publishing Guidelines.
Steve Booyens is a co-founder of Pearl Gray Equity and Research since 2020 and has been overseeing institutional equity research and PR. Prior to establishing the firm, Steve gained valuable experience in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Additionally, Steve has completed CFA Levels 1 & 2 and is pursuing a Ph.D. in Finance. His articles feature on reputable platforms such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s contributions to InvestorPlace offer an intriguing blend of mainstream perspectives and objective analysis. Expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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