Finding Hidden Gems: How to Spot Momentum Stocks at Bargain Prices

The traditional momentum investing approach often seems counterintuitive to beginners. Instead of waiting for a stock to hit rock bottom before buying, momentum traders embrace the “buy high, sell higher” philosophy. They chase stocks that are already moving upward, believing that established trends have more room to run. However, there’s a catch—when a stock’s price gets ahead of its actual growth prospects, investors can find themselves holding overpriced assets with minimal upside potential.

This is where a smarter approach comes into play: searching for stocks that combine both rapid price movement with reasonable valuation. This strategy reduces risk while potentially maximizing returns.

The Case for Delta Air Lines (DAL): A Textbook Example

Delta Air Lines exemplifies what investors should look for when applying a delta in investing strategy. The airline stock has demonstrated compelling momentum indicators while remaining attractively valued.

In the past month alone, DAL climbed 4.9%, showing steady investor confidence. More impressively, over the past three months, the stock gained 10.2%—indicating sustained buying interest rather than a fleeting spike. What makes this momentum particularly powerful is DAL’s beta coefficient of 1.5, meaning the stock swings 50% more than the broader market in either direction. For active investors seeking exposure to market movements, this volatility characteristic is valuable.

The Numbers Don’t Lie: Why Valuation Matters

The critical distinction between momentum plays and sound investments lies in valuation discipline. Many investors chase stocks purely on price action, only to suffer losses when the correction comes.

DAL tells a different story. Using the Price-to-Sales (P/S) ratio as a valuation benchmark, the stock trades at just 0.64x its annual sales. In practical terms, this means investors pay only $0.64 for every dollar of company revenue—a bargain by industry standards. This attractive pricing suggests the stock has meaningful room for appreciation.

How Analyst Upgrades Confirm Momentum

When covering analysts raise earnings forecasts, they’re essentially validating management’s execution. These upgrades trigger a domino effect: institutional investors increase positions, media coverage intensifies, and retail interest follows. DAL has benefited from this dynamic, earning a Zacks Rank #2 (Buy) rating alongside its strong Momentum Score of A.

This convergence—positive analyst sentiment plus favorable momentum indicators—historically correlates with superior stock performance among highly-rated securities.

The Practical Takeaway

The sweet spot for value investors exists where three conditions align: strong recent price performance, positive earnings momentum, and reasonable valuation metrics. DAL demonstrates how a delta in investing strategy can work in practice.

Rather than betting on cheap stocks hoping they’ll recover, or chasing expensive momentum stocks blindly, the balanced approach involves hunting for securities showing genuine buying interest while still trading at sensible valuations. This methodology has proven effective for identifying stocks positioned for sustained appreciation.