10 of the fastest moving stocks on the FTSE 250

Stockopedia picks out some of the top performers within the FTSE 250 as it continues a stellar run.

Despite all the nagging fears that hang over the economy, the UK’s FTSE 250 index is delivering a stunning performance so far in 2021. This week it hit another all-time high.

The value of the mid-cap 250 has risen by 17.1% this year. That compares to just 10.1% from the blue-chip FTSE 100. Behind the scenes, some of the strongest mid-cap performances have been in high quality stocks with solid momentum behind them.

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Indeed, quality has been a defining stock market factor over the past 18 months. In general, profitable firms with dependable cash flows, robust finances and sturdy business models have held up well. As surprising as it sounds, that isn’t always the case…

While high quality makes a lot of sense on paper, it’s a factor that can get pushed aside in bullish conditions.

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When the market has a risk-on appetite for speculative growth stocks, quality can quickly fall down the list of priorities. We’ve seen this a lot in recent years, where ‘growth’ and even ‘value’ have been the preferred factors for investors looking for rapid re-ratings.

Back to the present, and as confidence has improved, momentum has roared back into the market.

For many months last year, the number of stocks hitting new highs was slim. Companies beating broker forecasts were hard to find. Shares with a solid six months of price momentum were very thin on the ground. But that’s all changed.

As a result, we’re now seeing some of the best performances from high quality shares with strong momentum. It’s a classic two-factor strategy that echoes the investing approach of investors like the popular fund manager, Terry Smith.

Hunting for quality and momentum

For regular investors, of course, the challenge is that these shares can end up with expensive valuations.

The screening list (below) looks for the strongest “quality and momentum” stocks on the FTSE 250. But the rolling price earnings (PE) ratios for some of these shares stretches above 20x and as far as 50x - which can be a deterrent.

To help assuage those concerns, this screen uses a Quality & Momentum Rank that looks for a number of measures - or financial clues - that the company is profitable, strong and improving, both in terms of earnings and share price.

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Whatever measures you choose to use, the aim is to get as much comfort as possible that the quality and momentum are both strong - which can give you more confidence in the valuation.

A strong strategy - but watch the risks

Unlike the small-cap end of the market, the FTSE 250 tends to be a natural home to much larger, more dependable stocks. Among them are some of the highest quality firms on the London Stock Exchange.

In the current conditions, high quality has become popular with investors and some of these shares are attracting premium prices. The risk - as always - is that blistering momentum is prone to sudden shifts if a company disappoints to the downside. That said, paying a higher price for good quality shares with positive momentum is a solid strategy that has worked well over many years.

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