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Riding momentum isn't a sin

December 18, 2013: 7:59 AM ET
Going with the market's momentum is okay -- if you focus on stocks with sizzling fundamentals like Priceline.

Going with the market's momentum is okay -- if you focus on stocks with sizzling fundamentals like Priceline.

This article was published in the December issue of Money magazine.

By Paul R. La Monica

Buy low and sell high may be the first rule of investing, but that doesn't mean you should invest only in poorly performing shares while ignoring stocks on a roll.

If this year's market has taught you anything, it's that stocks that go up can keep climbing higher. In fact, history shows investing in the prior year's top-returning groups beats betting on a rebound among last year's worst performers, notes Sam Stovall, chief equity strategist at S&P Capital IQ.

Related: A different take on dividends

No one is saying to go buy Tesla (TSLA) -- up 350% year to date; price/earnings ratio: 98 -- or Netflix (NFLX) -- up 300%; P/E: 93 -- says Eric Jackson, managing member of the hedge fund Ironfire Capital. Instead, look at shares of companies that are within 10% of their 52-week highs. Then focus on names with strong profit growth, low debt, and reasonable valuations.

I ran this screen and was happy to see that several companies I cited in columns earlier this year made the cut, including FedEx (FDX), GameStop (GME), Qualcomm (QCOM), and Union Pacific (UNP). Here are three new names that have also had stellar runs -- and that still look as though they've got fuel left in the tank:

Seek financial strength... 

Corning (GLW) is an old-guard manufacturer thriving in the new tech world because of its Gorilla Glass unit, which sells screens to most major smartphone and tablet makers. Plus, "the company's balance sheet is a fortress," says Irwin Michael, portfolio manager with ABC Funds, which owns the stock. Those strong finances allowed management to recently announce plans to buy out Samsung Display's stake in a key joint venture that makes LCD displays. That acquisition is expected to boost Corning's profits by 20% in 2014 and 2015.

...and sustainable growth

The online travel site Priceline.com (PCLN) has been on a tear amid strong revenue and booking growth. Yet Mitch Rubin, manager of the RiverPark Large Growth Fund, which owns the stock, says investors shouldn't be scared off by the stock's P/E of 21.

Related: How much market risk are you willing to take?

The company's annual profit growth rate is as high as its P/E, a sign the stock isn't necessarily overvalued. Plus Morningstar analyst Dan Su says Priceline's outlook remains strong as the firm makes a big push into Europe and Asia, where online booking is less prevalent than in the U.S.

Watch: Twitter soars but still has much to prove

Rubin also likes the private equity firm Blackstone (BX), a leader in two asset classes gaining momentum: commercial real estate and alternative assets such as hedge funds. The firm's third-quarter earnings surged more than 30%, thanks to its real estate portfolio. Blackstone's size -- it is the world's third-biggest player in private equity -- should help the firm keep attracting assets.

"Their asset growth has been strong since their IPO, and it will continue to grow," says Rubin. Yet the stock trades at a P/E of 9, nearly half that of other asset managers.

  • Priceline near $1,000? That's not a typo

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Not even William Shatner could have negotiated a better stock price for Priceline.

    Shares of the online travel site -- most famous for those amusing ads with the original Captain Kirk -- are currently trading at MORE

    - Aug 6, 2013 12:59 PM ET
  • Travel stocks take off

    Investors caught a case of the travel bug Thursday after a blowout quarter from TripAdvisor lifted shares of other online travel companies.

    Shares of TripAdvisor (TRIP) surged 16% after the company said late Wednesday that earnings and revenue jumped in the second quarter, blowing past analysts' estimates.

    Some traders on StockTwits are hoping the trend will continue when Expedia reports quarterly results after the closing bell Thursday.

    Speens
    $EXPE ... I MORE

    - Jul 25, 2013 12:29 PM ET
  • Priceline, Google in race to $1,000 a share

    Google has some competition in the race to $1,000 a share.

    Priceline (PCLN) shares rose 2% to $910.51 in afternoon trading Thursday. The stock topped $900 Wednesday for the first time since the salad days of 1999. So far this year, Priceline is up 46%.

    Not to be outdone, Google (GOOG) shares gained 1.5% to trade at a fresh record high above $919.

    Wall Street has been eyeing four-digits for Google since February, MORE

    - Jul 11, 2013 3:27 PM ET
  • Priceline hits 52-week high

    If Priceline (PCLN) could name its own stock price, it would probably take this one. Shares of the online travel company hit a 52-week high Monday, jumping 3% after Priceline received an upgrade from Morgan Stanley's analysts.

    Morgan Stanley's analysts think Priceline's shares, currently trading around $880, can hit $1,010 as competition in the space declines. They also expect that Priceline has increased its market share of European travel.

    Should Priceline's shares follow Morgan Stanley's predictions, shares MORE

    - Jul 8, 2013 1:55 PM ET
  • Priceline (and Shatner) can't be stopped: Stock up 4%

    Raise your hand if you thought that Priceline (PCLN) shares would be falling Friday. I did.

    The online travel stock has been red hot this year. And even though it reported strong first-quarter earnings after the bell Thursday, its outlook was a bit conservative. The stock dipped after hours Thursday as a result.

    But shares popped 4% Friday to a new 52-week high. It just goes to show that you can't short MORE

    - May 10, 2013 12:42 PM ET
  • New Internet bubble? Not so fast

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Call them the dot-com survivors.

    AOL (AOL), Amazon.com (AMZN), eBay (EBAY), Priceline (PCLN) and Yahoo (YHOO) were all major players at the height of Internet insanity in the late 1990s. They are all still around today MORE

    - Jan 3, 2013 12:46 PM ET
  • Priceline falling over fiscal cliff? Stock down 5%

    William Shatner's Priceline Negotiator character famously plunged off a cliff in a TV ad earlier this year. Despite fears of his untimely demise, he miraculously survived. But now it looks like shares of Priceline (PCLN) are falling off the fiscal cliff ... and it's not as clear just yet if they'll bounce back as quickly as the Shat.

    Priceline's stock lost 5% Monday after Deutsche Bank downgraded it from a "buy" MORE

    - Dec 10, 2012 12:23 PM ET
  • Priceline the next Google? That's not good.

    Momentum is fickle. Investors in Google (GOOG) and Chipotle (CMG) both learned that the hard way after each company reported results that missed forecasts on Thursday.

    Now investors are trying to figure out what other Wall Street darlings could be ripe for a fall. Traders on StockTwits zeroed in on Priceline (PCLN). And shares of the online travel leader were down more than 4% Friday following a nearly 3% drop Thursday. MORE

    - Oct 19, 2012 11:59 AM ET
  • Priceline shares fall: Europe needs the Negotiator

    Another victim of Europe's debt crisis: Priceline.

    The online travel company's booking volume slowed substantially from a year earlier sending Priceline's stock plunging.

    Priceline's (PCLN) gross bookings still grew, but at a much more modest pace. In the second quarter of this year, bookings grew 26.8% -- the slowest growth rate since the second quarter of 2009 and far below last year's 69% surge.

    Investors punished the company's stock, with shares falling 17% MORE

    - Aug 8, 2012 4:15 PM ET
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Stupid Stock Move of the Day
#StupidStock Move of the Day! $AMZN up 3%. Rebounding with rest of tech. But with earnings Thursday, it seems risky to get too bullish, no?
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