In our previous note, “Rising Market Volatility Offering Buying Opportunities. NVIDA (NVDA), Intel (INTC) And Netflix (NFLX) Top Trending Stocks.”, we took a look at those stocks in the S&P 500 which were the top trending stocks over the past week. The goal was to see if we could find some interesting buying opportunities based on trending news.
This time around, we take a look at those stocks in the S&P 500 who have seen the largest relative jump in news stories versus their average and also have the best sentiment in their news stories over the past week. Why are we doing this? Well, the absolute volume of news commentary isn’t necessarily a telling factor. If that were the case, then that would mean we should only buy the largest stocks by market capitalization in the S&P 500 – these stocks will always have the largest number of news stories.
From our research of alternative sentiment factors, we find that what is more important is the number of news stories relative to average expected news stories for a given a stock rather than the absolute number of news stories. The greater this relative relationship, the more we can assume that there is potentially unusual news momentum building behind the stock. We can call this “news momentum”.
Similarly, given the recent sell-off in the S&P 500 over the past few weeks, our goal is to find stocks whose valuations may be overly discounted relative to the fundamental momentum driving their businesses. This feature can be captured in the sentiment of the authors writing articles on the company – sentiment will be positive for companies whose businesses continue to perform well on a fundamental basis. If a company’s news sentiment is positive and its share-price valuation over-discounted, that might present a possible buying opportunity for a value investor.
By combining our news momentum and news sentiment factors, we are creating a blended value-momentum strategy – “value” which is seeing improving “momentum” on the margin.
The two names which jump out at us right away are consumer staples stocks Hershey Corp (HSY) and Walmart (WMT). Both are low beta consumer stocks which should perform well in the current environment. And don’t forget, they both also have very attractive dividend yields!
Another interesting stock on the list is Verizon Communication (VZ). Since a lot of people will be working from home, you can make the qualitative argument that in that scenario, Verizon’s (VZ) B2C should do well as there will probably be greater demand for higher quality broadband service.
Stocks with Biggest Unusual Jump In Positive Sentiment
- Aflac (AFL) is currently sitting at $34.69. Aflac (AFL) currently is down 34.07% for the year.
- CenturyLink (CTL) closed at $10.12 and is down 21.79% for the year.
- Cognizant Technology Solutions Corp (CTSH) sits at $52.62 as of last Friday’s close. For the year, Cognizant Tech (CTSH) is -14.88% for the year.
- The Hershey Company (HSY) finished the volatile trading week at $139.84. For the year, Hershey (HSY) is down 4.40% for the year.
- Hess Corp (HES) finished a rocky trading week at $34.92. Hess Corp (HES) is now down 47.36% for the year.
- Mettler-Toledo International (MTD) currently sits at $672.64. For the year, Mettler-Toledo (MTD) is -15.21%.
- Microchip Technology Incorporated (MCHP) closed the week at $69.97. Microchip Tech (MCHP) is -32.96% for the year.
- People’s United Financial (PBCT) closed last week at $12.86. People’s United (PBCT) is now down 23.05% for the year.
- Verizon Communications (VZ) finished last week’s trading session at $54.17. For the year, Verizon (VZ) is down -10.85% for the year.
- Walmart (WMT) finished last week at $114.1. For the year, Walmart (WMT) is down 3.99% for the year.
Special note: All returns are calculated as total return.
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