8 Stocks With Strong Momentum and Solid Balance Sheets

Even with the S&P 500 achieving a fresh record close, Piper Sandler suggests that there are still opportunities to identify momentum stocks with substantial free cash flow yield and growth potential.

Wednesday marked a significant day for the three major indexes, as the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all closed at record highs following indications from the Federal Reserve of potential rate cuts in 2024.

Michael Kantrowitz, Piper Sandler's chief investment strategist, emphasized that despite investor concerns surrounding high momentum stocks, a considerable portion of these stocks falls within the value category. He argues that the current momentum trade exhibits much stronger fundamentals than those witnessed in 1999/2000, suggesting there is further upside potential.

Contrary to common belief, Kantrowitz noted that tech- and AI-adjacent names haven't solely driven today's momentum trade. Instead, the leadership in momentum stocks has been more diversified.

Furthermore, Kantrowitz underscored the importance of high-quality stocks, particularly those with a high free cash flow yield, as a crucial factor for investment in 2024. He regards free cash flow yield as a factor that combines quality with valuation, functioning effectively across various market cycles and proving to be one of the top-performing factors over decades.

In a recent note, Kantrowitz presented a selection of stocks in the S&P 1500 exhibiting strong momentum based on their 52-week returns, coupled with a high free cash flow yield. Here are some of the highlighted names:

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Piper Sandler's Momentum Stocks with High FCF Yield

Gap, which has surged nearly 30% in 2024, stands out as one of Kantrowitz's picks. The clothing retailer boasts a free cash flow yield of 10.8%. JPMorgan recently upgraded Gap to a neutral rating, citing strengths in its marketing, inventory, and merchandise assortments.

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Cigna, another highlighted name, has seen an 18% rally this year. With a free cash flow yield of 9.1%, the health insurance giant remains attractive to investors. Barclays initiated coverage of the U.S. health-care facilities and managed care sector, rating Cigna as overweight with a price target of $393, suggesting an 11% upside from current levels.

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Wells Fargo, with a 16% increase in 2024, also makes the list. The banking stock boasts a free cash flow yield of 16.2%. Approximately 60% of analysts covering Wells Fargo rate it as a buy or strong buy, according to LSEG.

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