Southwest Airlines (LUV) Shows Strong Momentum: Is It a Good Investment Choice?

Understanding Momentum Investing

Momentum investing centers on the concept of capitalizing on a stock’s recent price movement, whether upward or downward. In a bullish scenario, investors may purchase shares at elevated prices with the expectation of selling them at even higher levels. The strategy relies on the belief that once a stock establishes a trend, it is likely to persist in that direction, enabling timely and potentially lucrative trades.

Challenges in Identifying Momentum

Pinpointing momentum in stocks can be challenging, as there is ongoing debate about which indicators best predict future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, was developed to help investors navigate these uncertainties.

Spotlight on Southwest Airlines (LUV)

Currently, Southwest Airlines (LUV) holds an A rating for its Momentum Style Score. Key factors influencing this score include recent price movements and changes in earnings estimates.

Complementing the Zacks Rank System

The Style Scores are designed to work alongside the Zacks Rank, a stock rating system known for its strong track record. At present, Southwest Airlines (LUV, -1.66%) is rated as a Zacks Rank #1 (Strong Buy). Research indicates that stocks with a Zacks Rank of #1 or #2 and a Style Score of A or B tend to outperform the market over the following month.

Can LUV Outperform the Market?

To determine if LUV is a compelling momentum candidate, let’s examine several momentum-related factors.

• Short-term price trends are a useful gauge of momentum, reflecting current market sentiment and the balance between buyers and sellers.
• Comparing a stock’s performance to its industry peers can help identify leading companies within a sector.

Over the past week, LUV shares have climbed 1.92%, outpacing the flat performance of the Zacks Transportation - Airline industry. On a monthly basis, LUV has surged 22.5%, far exceeding the industry’s 2.27% gain.

Consistent outperformance is rare, but Southwest Airlines has delivered: its shares have advanced 42.93% in the past quarter and 67.4% over the last year, compared to the S&P 500’s increases of 3.1% and 16.42% during the same periods.

Trading volume is another important metric. LUV’s average daily volume over the past 20 days stands at 11,491,281 shares. Generally, rising prices on above-average volume are bullish, while declines on high volume can signal weakness.

Earnings Trends and Analyst Revisions

The Zacks Momentum Style Score also incorporates trends in analyst earnings estimates, a core component of the Zacks Rank. Positive estimate revisions can signal growing confidence in a company’s outlook, and LUV has recently benefited from such trends.

• In the past two months, eight analysts have raised their full-year earnings estimates for LUV, with no downward revisions. The consensus estimate has increased from $3.06 to $4.30 over the last 60 days.
• For the next fiscal year, five estimates have been revised upward, with no reductions.

Conclusion

Given these positive indicators, it’s no surprise that LUV is rated as a Strong Buy (#1) and holds an A Momentum Score. Investors seeking a promising stock with strong near-term potential should consider adding Southwest Airlines to their watchlist.

Top Semiconductor Stock Identified by Zacks

Zacks has also highlighted a lesser-known semiconductor company that produces products not offered by industry giants like NVIDIA. Positioned to benefit from the next wave of industry growth, this company is just beginning to gain attention.

With robust earnings growth and a rapidly expanding customer base, it is well-placed to meet the surging demand for Artificial Intelligence, Machine Learning, and the Internet of Things. The global semiconductor market is expected to grow from $452 billion in 2021 to $971 billion by 2028.

Additional Resources