In the stock trading world, momentum is defined in many ways. The most common description involves the recent price performance in a stock over certain time period such as one week, month, or even year. Other definitions relate to analysts' earnings estimate revisions for a company.
However you want to define momentum, these three large-cap stocks clearly have it. The best part? They may have plenty left in the tank.
What is Driving the Charles Schwab Rally?
Charles Schwab (NYSE:SCHW) stock had a strong November. The run came on the heels of the closure of its $22 billion merger with TD Ameritrade which will strengthen its position as a U.S. brokerage powerhouse.
Soon thereafter, Schwab announced that it was laying off 1,000 employees, or roughly 3% of its combined workforce to eliminate redundant positions.
The bigger and somewhat leaner Schwab now has approximately 28 million brokerage accounts and over $6 trillion in assets. While there's still plenty of work ahead to integrate TD Ameritrade, the stouter broker platform will be an even bigger force to be reckoned with.
Although most major brokerages now offer commission-free trading Schwab got a head start by initiating the move that had major ripple effects on the industry. This helped it bring in new accounts and assets—and grab more market share well before its merger was finalized.
Despite having the wind at its back, Schwab shares are only up 7% this year. Given its beefed-up offerings and synergistic opportunities, the path to stronger financial performances has being paved.
On top of that, with the level of retail investment swelling during the pandemic, the flood of new accounts and non-trading fees is likely to continue. Schwab's index funds on which it still collects fees remain popular and the acquisition of thematic investment company Motif's technology will also drive growth. The new Schwab Stock Slices product which allows investors to buy fractions of S&P 500 stocks in $5 increments is likely to bring a whole new pool of investors into the game and enhance revenue growth.
Schwab is evolving into a more diverse investment company with relevant product offerings and modern technology that should continue to draw in Millennials and other young investors. It won't be long before the stock eclipses its May 2018 all-time high of $60.22.
Does Deere Have More Room to Run?
Farm and construction machinery company Deere & Company (NYSE:DE) is riding an eight-month winning streak. After two straight earnings blowouts, estimates for Deere's current quarter ending January 2021 have been on the rise.
The consensus forecast for earnings per share has climbed to $2.16 which represents 33% year-over-year profit growth. Earnings for fiscal 2021 are forecast to increase more than 45%. Not bad for a company that saw its business grind to a halt at the onset of the pandemic amid a slowdown in farming and construction activity.
Today its full steam ahead for Deere which is focused on creating products for the farmer of the future. The agriculture industry of tomorrow is expected to be technology-driven and centered around automation. Deere's innovations in this field are its most exciting growth opportunity. As agriculture customers replace their stodgy old tractors with Deere's modern fleet of efficient farming solutions, revenue growth could accelerate.
Deere also has exciting opportunities outside of the improving agriculture industry. It has an up and coming construction business that was bolstered by the acquisition of road equipment company Wirtgen. This has helped make Deere a bigger player in the global transportation infrastructure space.
And given President-elect Biden's plans to spend heavily on infrastructure, Deere stands to be a major beneficiary of government spending. This is also the case overseas, where Deere is expanding its footprint in places like Australia where infrastructure spending is also a government priority.
Look for Deere stock to continue to plow ahead on the positive momentum in both its agriculture and construction divisions. Any weakness in the share price should be viewed as a chance for investors to harvest some nice long-term gains.
Can Dow Regain Slowing Momentum?
Not to be confused with the well-known stock market index, Dow (NYSE:DOW) is a materials science company that spun-off of DowDuPont last year. Its plastics for food and industrial packaging serve higher growth markets like the consumer, while chemicals, coatings, and other materials support infrastructure and industrial customers worldwide.
Dow has topped earnings estimates in each quarter since branching off as a separate company including a 52% beat last quarter. Along with expense reductions, the driving force behind the momentum has been strong demand for plastics and home care products such as those beloved cleaning supplies that everyone has been stocking up on. Dow's other key end markets like furniture and appliance manicuring have also been resilient.
Although the momentum has slowed a bit in recent days, Dow is likely to regain momentum and bounce back off its 50-day moving average. Management followed up the strong third-quarter performance by saying it sees the rebound in end-market demand continuing into the fourth quarter.
Looking past the current quarter, the key theme for Dow will be its ability to not only sustain current demand but to deliver on its restructuring initiatives which are forecast to drive $300 million in cost savings by the end of next year.
Analyst earnings estimates have been trending higher over the last few months. Although the fourth-quarter report won't take place until early February, investors should consider buying Dow stock while it is taking a breather and before the potential pre-earnings run-up begins.
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