Momentum Picks Q1 2025: 5 stocks for winter

I would first like to thank you for your numerous feedback. There are tens of thousands of investors interested in this selection and this constitutes the most read content on Zonebourse in 2024.

Methodology

Let’s start with the process. The goal here is to build a selection that is both efficient and resilient. To do this, I rely on Evidence Based Investing, that is to say on scientific research which has proven the relevance of certain investment strategies over time. This very rational investment process has made it possible to highlight the relevance of certain investment factors. I had the opportunity to talk about this process during a podcast last month.

The Momentum Picks selection is mainly based on two of these factors: Quality et Momentum.

• Momentum : In the classic sense of the term, momentum is an investment vision consisting of favoring stocks that follow an upward trend over the last six and twelve months. At Zonebourse, the momentum certainly integrates data relating to the positive trend of the stock in the short, medium and longer term, a so-called “technical” momentum, but also the revisions of profits and turnover by analysts in the short and long term, weighted by the visibility of the analysts’ business model than in the divergence of their numerical estimates, starting from the hypothesis that the analysts are rather conservative in their revisions, this is a more “fundamental” momentum. To understand the momentum factor, I invite you to read this praise of momentum.
• Quality : The postman quality favors companies with solid fundamentals, namely positive profitability (if possible), high profitability, a healthy balance sheet, low volatility of margins, a quality history in terms of publication of results as well as good visibility on the next results.

Another benefit of Momentum Picks is that each quarter we rethink our thoughts. I start from a blank page to create the best possible selection. This constant questioning allows you to avoid clinging to old ideas that might work less well. After all, “When you can’t go back, you should only worry about the best way to move forward.” (Paulo Coelho). Being passionate about behavioral psychology since my university years, I give pride of place to the integration of mental models into my management process, allowing me to avoid as much as possible being sidetracked by my cognitive biases.

The selection is constructed to generate the best possible risk/reward contained in its limited composition. However, a selection of just five stocks does not constitute a sufficiently diversified portfolio. Rather, Momentum Picks should be considered as a complement to an already diversified portfolio. Moreover, I invite you to think critically about this selection and to do your own research on these companies. Although this section provides insight into both the process and the outcome of that process, remember that it is your investment decision.

3-year review and analysis of past performance

During our previous selection, we chose AppLovin, Universal Health Services, Heico Corporation, Now Holdings et Freshpet. A portfolio equally weighted on these five positions would have generated a return of 20.30% compared to 2.07% for our benchmark, the S&P 500 index, over the fourth quarter of 2024 (from 09/30/2024 to 12/31/2024) , representing an outperformance of 18.23%. At the individual level, AppLovin gained +148.05% over the quarter, Freshpet gained +8.29%, Universal Health Services, Heico Corporation et Now Holdings respectively corrected by -21.65%, -9.08% and -24.10%.

AppLovin was the spearhead of this selection over this quarter as well as the two previous quarters. It has achieved a performance of +367.83% since entry into the selection at the end of March 2024 and of +712.62% in 2024, i.e. the best American stock market performance of the year among market capitalizations of more than 10 billion dollars. It contributed to the selection of Momentum Picks which achieved a performance of 92.40% in 2024 compared to 23.31% for the S&P 500. AppLovin crowned its operational success with its entry into the Nasdaq-100 at the beginning of December. Despite its flawless performance in 2024, we are selling the stock because the valuation has gotten a little too far ahead of the fundamentals for my taste.

The selection Momentum Picks started on December 31, 2021 achieved a cumulative performance of 142.96% compared to 23.40% for our benchmarkthe broad American S&P 500 index, i.e. an outperformance of +119.56% in 3 years. The most frequent readers of this section replicating this selection have more than doubled their capital in less than 3 years and done 6 times better than the S&P 500. This performance was achieved without taking advantage of the magnificent 7 since none of these 7 giants technology has not integrated the selection. Proof that we can find investment ideas elsewhere.

Cumulative performance

To cite a few other indices, the Nasdaq-100 displays a cumulative performance of 28.75% over this same period, the MSCI World 14.73% and the Stoxx Europe 600 4.06%. In addition, the performance of Momentum Picks does not include the payment of dividends to shareholders over the period, the actual performance is even higher than these figures.

Performance vs. benchmarks over 3 years

“The most frequent readers of this section have more than doubled their capital in 3 years and done 6 times better than the S&P 500.”

This performance gain is due to three main parameters (two of which can be controlled):

• The use of a time-tested strategy based on scientific research;
• Equal-weighted management that is pragmatic, impartial and free from emotional bias;
• A bit of luck.

Despite these very encouraging performances of our proven selection and management process, we must remain humble in the face of the market. I share the idea of ​​François Rochon from Giverny Capital on the famous rule of three. One year in three, the stock market will fall by at least 10%. One title out of three selected will be a disappointment. One quarter out of three, the Momentum Picks will underperform the market. This is not inevitable but rather an objective way of thinking about reality on the stock market. An element of luck always exists. It is essential to be aware of this in order to prepare psychologically for the inevitable periods when the Momentum Picks selection will underperform our benchmark.

Performance per quarter

The Momentum Picks selection has outperformed its benchmark (S&P 500) in 10 of the last 12 quarters. We therefore observe a certain recurrence of performance in market contraction phases as well as in expansion phases.

The new selection

Let’s look in more detail at the five American stocks selected for the first quarter of 2025 (January to March).