Value & Momentum: The Best of Both Worlds

In his latest column for Canada’s Globe and Mail, Validea CEO John Reese looks at stocks that have both value and momentum on their side. 

“Don’t chase hot stocks. If you’re a serious investor, you’ve probably heard this piece of wisdom hundreds of times,” Reese writes. “And generally it’s good advice — but incomplete. The full version should be: ‘Don’t chase hot, expensive stocks.'”

Reese says the distinction is a key one. “High-flying, overpriced stocks often lose steam and plummet to the ground,” he says. “But high-flying inexpensive stocks can continue to fly high for some time — and they don’t have as far to fall if their momentum wanes. Used properly, momentum can be a big help in choosing which stocks to buy.”

As an example, he looks at his Motley Fool-based portfolio, which is inspired by the writings of Fool creators Tom and David Gardner. His U.S.-based Fool portfolio, which uses both value and momentum metrics to pick stocks, has gained more than 13% annualized since its 2003 inception, vs. less than 4% for the S&P 500.

Reese looks at a trio of Canadian stocks that get approval from his Guru Strategies (each of which is based on the approach of a different investing great) and have both momentum and value on their side. Among them: Dorman Products.