Anthony Speciale Stock Market Analyst

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Looking for Momentum in All the Right Places

Hi guys. I’m Tim Melvin, and welcome to A Better Way to Wealth!

As we move further and deeper into the new year, we’re always looking for the type of momentum stocks that are moving up and to the right in a very smooth pattern because of heavy institutional buying.

We love momentum stocks. We do trade them a little differently than we do value stocks but, nevertheless, we’re going to ride them as long as they’re going up.

And if they stop going up, we get out of them and look for the next name.

However, momentum is the other long-term anomaly — along with buying undervalued securities — that no one has ever quite been able to arbitrage away.

Undervalued stocks perform better over one, two and three year periods, but in that six to 12 month period, momentum rules the day most of the time.

Best of all, if you have half your portfolio in momentum and half your portfolio in value, one tends to zig when the other zags, smoothing out overall volatility, creating a much smoother ride to accumulating the wealth you need to live the life you want.

CorVel Corporation

First up on our screen is one that nobody’s paying any attention to… CorVel Corporation (CRVL).

Formerly going by the name of Fortis, it’s a risk management company that covers workers’ compensation, auto insurance, liability insurance and health insurance for larger companies, government agencies, insurance companies and third-party administrators.

They’re using artificial intelligence and predictive analytics to help people manage their clients… Helping to price their policies, find the coverage that they need, manage claims, particularly in healthcare and workers’ comp, and that’s a big deal for the insurance companies, third-party administrators and government agencies that are self-insuring under one of the government’s health insurance programs.

Its claims management and cost containment is the whole focus of the business. Using artificial intelligence, they’re growing revenues. They’re also growing earnings, which are up about 60% over the last six months compared to 2020.

Believe me, the pandemic really did not have much of a negative impact on the risk management business. If anything, it probably helped spur some sign-ups!

The growth in revenue and earnings is, obviously, a very positive sign and is attracting those institutional investors that are just buying stock on a regular basis and giving us that smooth, up and to the right momentum that I think is going to carry on throughout the first half of 2022. 

Tri Pointe Homes Inc.

Next up is Tri Pointe Homes Inc. (TPH).

Guys, I talk about home building quite a bit, but there’s a reason… 

We came into the pandemic several million houses short of meeting demand. We were probably two million homes short, needing two million new homes immediately added to inventory so it was going to be a good year for the builders anyway.

Then the pandemic hit, and it created a whole bunch of new demand, making a couple things happen…

First, people began fleeing the big cities and started to work from home. Now, I’m not one that thinks that New York and Seattle and San Francisco are going to be empty.

I do think there’s going to be a lot less people living there because if you can work from home, you can work from anywhere!

I don’t know if you’ve ever looked at pricing in New York or San Francisco but, folks, it’s not cheap.

And I don’t mean just the rent or the OR the mortgage… It’s food, transportation… It’s everything.

It’s just more expensive to live in the larger cities across the United States, and there are a lot of people who are now asking themselves why they’re paying $3,000 for half of a two-bedroom apartment in an urban area when, for the same price somewhere like Austin, Texas or Wilmington, North Carolina, they can get a nice two- or three-bedroom apartment to yourself or even buy a home! 

So, a lot of people have simply decided to move out of the big cities and buy a house in a smaller town, and this has created a lot of demand.

Then, there’s something else that is happening… Millennials are finally settling down and forming families.

And when you start to have a family, you don’t really care whether or not you can get Thai food at 3 a.m. in New York City or how late the clubs stay open. With a new family, now you begin thinking about things like schools and shopping and traffic.

All this to say, it’s a whole different game, and it’s going to create a lot of demand for new homes. Tri Pointe Homes is well positioned to meet that demand.

Honestly, I like this company a lot. It’s one of the largest home builders, currently the sixth-largest in the United States, with six regional builders doing business around the US. 

They build houses at all price points, but like most builders, they’ve been building the first and second move up houses with an average house price a little over $600,000, so they’re also doing a lot of high-end stuff too, obviously.

In the last 12 months, they delivered 5,936 new homes and have 109 selling communities, a lot of which will be closed out this year.

They’re also planning to add about 70 new communities to that list, so it does appear that they will continue to be a growth industry in the foreseeable future.

They’re not going to have any problem finding land at reasonable prices to build around the United States in the smaller towns and cities where the demand is really high.

We’ve got four consecutive quarters in a row where they’ve blown away what the stock analysts thought that we’re going to make, beating their estimates by a substantial amount, which means the analysts have been scrambling to raise their estimates for the company, which brings in institutions.

Institutions love to see positive surprises and analysts raising interest rates, and that’s exactly what we have going on with shares of Tri Pointe Homes, whose institutional buying pressure is smoothly pushing the stock up and to the right.

We’ve got fundamental momentum producing price momentum, and that is one powerful combination. Folks, all the tailwinds appear to be behind TriPoint Homes.

In my opinion, we need between four to five million new homes to fully meet demand in the United States alone. They’re simply well positioned to be a huge player in the home building market, and I think 2022 is going to be a great year for home builders in general.