10 fast-moving growth stocks that are fighting back

Stockopedia’s Ben Hobson has screened the stock market to find shares likely to appeal to growth investors looking for big-hitting winners of the future.

In a market correction like the one we have suffered in recent weeks, it is not unusual to see investor attention turn to ‘value’. Finding good quality stocks that have been swept up in a wave of panic selling is the value investor’s bread and butter. But, of course, faced with an uncertain future, a quick recovery in prices is far from certain.

By contrast, not all stocks have been beaten down in value during this crisis. Some have not only resisted the volatility, but they continue to be popular in the market. Often these shares are anything but cheap, although that does not necessarily mean they are a bad buy.

That is because, while value is an age-old stock market profit driver, there are other factors that also power returns. High quality and strong momentum are two other major factors. And when you take these high ‘QM’ shares and go looking in sections of the market that tend to be a little more volatile, you can actually find some very impressive performances - even in a pandemic.

So what does high ‘QM’ actually look like?

Well, company quality easily captures a whole host of possible measures. But most would agree that solid profitability, efficiency and strong and improving finances (as measured by a high Piotroski F-Score, for example) are a must. Likewise, upward trends in both share price and earnings are naturally very desirable. Firms that are beating forecasts tend to see similar patterns in their share prices, so momentum is also very important.

When you mix high quality and strong momentum at the larger end of the market, you find names that most investors would love to own. Right now, those rules would pick up stocks like RELX (LSE:REL), Rightmove (LSE:RMV), Dechra Pharma (LSE:DPH) and Unilever (LSE:ULVR). They have got a history of outperformance, but rarely ever looked cheap to buy.

When you switch focus to small and mid-cap stocks, particularly those with price trends that are historically more volatile than most, then you start tapping into some interesting areas. Speculative, high QM stocks have been some of the best-performing shares in the market over the past decade. And, even in a crisis, they still exist. Here are some of those names today:

This is a group of shares that have resisted the overall downward trend in the market over the past six months, helped in part by strong signs of quality. You find them in a wide range of sectors - ranging from mining shares like Pan African Resources (LSE:PAF) and Ferrexpo (LSE:FXPO) to games developers like Team17 (LSE:TM17) and Sumo (LSE:SUMO). These smaller, more speculative names are much more likely to appeal to growth investors looking for big hitting winners of the future.

While the combination of quality and momentum can be potent, there is no getting away from uncertainty in the market. The popularity of these shares can push them to high valuations, and that is a risk if market sentiment wavers and their momentum starts to crumble. 

Despite the risks, a strategy of combining quality and momentum (even at high prices) has been very strong in recent years. It could be that these shares are some of the early winners as and when the market starts to settle.

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