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TheStreet Open House

Teeing Up Four Value Momentum Stocks

This column was originally published on RealMoney on Oct. 3 at 10:14 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

For baseball fans, the greatest two weeks of the year are just around the corner. That's the start of the major league playoffs, when the networks broadcast two or three high-stakes, high-energy games per day until the American and National Leagues produce a champion that they can send on to the World Series.

In a way, the stock market also begins its own brand of playoffs this month. On the one hand, we have the herd of third-quarter earnings reports coming up. And on the other, we have a period in which the year's best-performing stocks begin their duel for the market championship.

Although there are no special records kept for the best-performing stocks of calendar years, we know empirically that the stocks that are up 50% to 200% or more by this time of the year are the ones that end up 300% or more by the end. It doesn't take a degree in mathematics to figure this out, of course, but it's worth observing that stocks with the best momentum coming into the fourth quarter are piled into by portfolio managers seeking to pump up their own annual returns.

Very often, these stocks deserve the attention, because what has driven them to the strong nine-month returns are earnings and revenue growth that was unappreciated prior to the start of the run. And occasionally, those runs are accompanied by continued low valuations as price fails to keep up with those improving earnings.

An example of latter sort of "value momentum" is Allegheny Technologies (ATI - Get Report), a specialty metals processor that we recommended on Sept. 19. It's up 43% for the year and going strong into the end of the year as its markets -- including oil and gas rig makers, power plant builders and airplane makers -- are in the sweet spot of the global economy today. All of its price multiples are low, and growth prospects are high.

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