Best Stocks: This momentum play seeing huge investor accumulation is on the verge of another breakout

CNBC

3 days ago

(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here - The S & P 500 index has fought all the way to breakeven for 2025, but there's one investment style that's blowing the doors off the rest of the stock market. If you guessed "momentum" you got it right. What's probably very frustrating for all the value investors, the minimum volatility investors, the high dividend investors and other professionals is that momentum was also the best performing factor in 2024, up more than 32% last year. Momentum was the top performing factor in 2015, 2017 and 2020. It was the second best in 2018 and has compounded at 12.7% returns for the last ten years. What does this mean for the portfolio manager who eschews the momentum factor for some other style? One more year of apologies to the end investor who wonders why everyone else is having more fun than he is. Markets are aggravating like that sometimes. On paper, a year with this much volatility and uncertainty might make the casual observer surmise that defense would be the move and momentum would be too risky. If only it were that simple. It turns out that some of the most exciting momentum stocks of 2025 are also among the names that would also be considered traditionally defensive. Take JPMorgan Chase and Walmart , for example — they're not often associated with the momentum trade, and yet they are the number two and three largest holdings in the most popular momentum stock index ETF at the moment. Go figure. For this week's update, Sean took a look at some of the names that appear on both our Best Stocks in the Market list as well as the Momentum factor index to see where we're overlapping. Right now we're overlapping a lot. There are over 40 names on the Best Stocks list that are also momentum winners this year. Take, for example, this absolute juggernaut of a company — Visa (VISA) — currently a constituent of both: Look at that springboard off the 200-day during the trade war panic of early April, you couldn't have asked for a better sign of accumulation. Visa is a Best Stock right now that looks to be on the verge of another breakout above its February all-time high. It's been a big winner ever since it was added to the Dow Jones Industrial Average back in 2013. Both long- and short-term players have been rewarded. I'll let Sean take it from here on the momentum factor and some leaderboards for the Best Stocks list. Why momentum investing works Sean — Factors are characteristics or attributes of securities that help explain their risk and return. You can slice and dice these attributes anyway you want to create a "factor," but the most popular and well-researched ones include value, momentum, size, quality, yield and volatility. These factors are used in both academic research and practical portfolio construction to identify patterns in asset performance. One of the most powerful drivers of stock market returns historically has been momentum. Momentum is a factor based on the idea that assets that have performed well in the recent past tend to continue performing into the future, and vice versa for underperformers. It's rooted in behavioral finance—investors often chase winners and avoid losers, creating a self-reinforcing cycle that pushes trending assets further in the same direction. Momentum strategies typically rank stocks by recent returns (usually over 6 to 12 months). The momentum factor fits well with our analysis as it adheres to the same central theme that technical analysis does - price is the final arbiter of what is right or wrong . Whatever is happening in the world right now has been priced in or is getting priced in as you read this article. Markets are far from efficient every moment of the day, but the current price reflects what buyers and sellers believe is fair. When a stock's price is going up, there's a good reason for it (unless you're a meme stock). Those reasons tend to be bullish for longer than people expect. An overwhelming majority of buyers in a stock is not a bad thing! It means the underlying fundamentals of the stock are set to improve, and the market is recognizing that reality! Our list of stocks is built around this idea - higher prices are telling us a story. Through all of the negative headlines, sentiment, and gloom thus far in 2025, momentum is surprisingly the best-performing factor YTD: Momentum is also notoriously volatile. It can experience sharp reversals, especially during market regime shifts, similar to what we experienced in April. Notice above, momentum was the second worst performer at the market bottom in early April. Below is the iShares MSCI USA Momentum Factor ETF (MTUM) , one of the largest momentum ETFs out there: It's outperforming the unassailable S & P 500 by 11% this year. And that's not a one-off occurrence. It's outperforming the S & P 500 on an annualized basis over the past year, 3 years, 10 years, and since inception (it's underperforming over the past 5 years on an annualized basis). There are currently 43 stocks on our list that also appear in the MTUM ETF. A couple of the big names that appear on our list and the MTUM ETF: AVGO , V , NFLX , COST , and PLTR . This year, we went from a majority of utility stocks on the list, to now a majority of industrials and tech. The dynamic nature of momentum is what makes it a high-performing strategy. It is rules-based, systematic, and adaptive. By relying on price trends rather than forecasts, momentum captures the strength of what's working now, for fundamental reasons. Here's where our list lands in terms of sector and industry exposure, as well as the 5 names with the highest RSI readings: Inside the Best Stocks As of 6/2/2025 morning, there are 112 names on The Best Stocks in the Market list Top Sector Ranking: Top Industries: Top 5 Best Stocks by Relative Strength: DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.