Here is a mid cap that deserves a closer look.

Shares in Headlam (LON: HEAD) are currently trading at 470p, but a key question for investors is to what extent the current economic uncertainty will impact the price.

Part of the answer might come down to whether it is well positioned to withstand economic shocks and Market volatility. To understand this, it’s worth examining his profile to see where his strengths lie.

The promising news is that Headlam shows signs of a positive rating against some important financial and technical metrics. In particular, it is exposed to of them influential drivers of return on investment: high quality and strong momentum.

Here’s why it’s important …


Why quality stocks pay off

When it comes to stock analysis, business quality tends to manifest itself in high profitability and high peak margins. These types of businesses are stable, growing, and often experience acceleration in sales and profits. They also have a strong and improving financial history with no signs of accounting risk or bankruptcy.

One of Headlam’s most notable quality indicators is its 5-year return on capital employed, which is 11.3%. Good double-digit ROCEs indicate businesses that can grow very profitably.

Harnessing the power of momentum

Positive momentum trends are manifested in stock prices and earnings growth. You can find the indices in stocks that are trading near their 52-week high prices and outperforming the market. They will often exceed brokers’ estimates and get forecast upgrades and recommendation changes.

This is true at Headlam, where the stock price has returned 30.4% against the market over the past 12 months. Market volatility and economic uncertainty can be a major drag on momentum, but previously strong stocks can quickly recover when confidence returns.

In summary, good quality and momentum indicate some of the best stocks on the strongest uptrends. This combination of factors can be a clue to finding stocks that can generate solid investment earnings over many years.

In good times, these stocks can become expensive to buy. But in volatile markets, there may be chances to buy them at cheaper prices.

What does this mean for potential investors?

Finding good quality stocks with strong momentum behind them is a strategy used by some of the most successful investors in the world. But be warned: these factors do not guarantee future returns and we have identified a few areas of concern with Headlam which you can discover here.

Alternatively, if you want to find more stocks that show signs of strong quality and momentum, come take a look at this High Quality & Momentum display.

About Larry Noble

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