For investors looking to join solid fundamental momentum with good technical entry points, a multi-factor screening method can be a useful tool. By selecting for stocks that show healthy earnings and sales growth, positive estimate changes, and speeding trends, qualities included in ChartMill’s High Growth Momentum (HGM) Rating, and then adding a solid technical health score (TA Rating) and a good-quality consolidation pattern (Setup Rating), one can find candidates ready for possible breakouts. This approach fits with strategies like CANSLIM, which stress buying market leaders with solid earnings momentum as they come out of good basing patterns. First American Financial Corp (NYSE:FAF) recently appeared from such a screen, offering a case where speeding fundamentals meet a positive chart setup.
Fundamental Growth Momentum
First American Financial receives a ChartMill High Growth Momentum Rating of 6, pointing to a good base of growth traits that momentum investors seek. The rating combines several important measures, and FAF’s profile shows clear strength in recent quarterly performance and profit trends.
- Earnings Speed: The company has shown major year-over-year earnings per share (EPS) growth in recent quarters. The latest quarter saw EPS jump 47.4% against the same period last year. While the previous quarter grew 26.9%, the quarter before that sped up markedly to 86.7%. This sequence of solid, and in some cases speeding, quarterly growth is a central idea of momentum investing.
- Steady Earnings Surprises: A sign of positive momentum is when a company regularly beats analyst forecasts. FAF has topped EPS estimates in each of the past four quarters, with an average surprise of 17.75%. This steady outperformance can build positive feeling and further estimate changes.
- Growing Profitability: Beyond top-line growth, growing margins point to better operational efficiency. FAF’s profit margin in the last reported quarter was 9.58%, a notable increase from 7.93% the prior quarter and 4.69% two quarters ago. This direction of growing margins is a positive part of the HGM Rating.
- Solid Cash Flow Generation: The company’s free cash flow per share over the trailing twelve months grew a notable 92% against the prior year, highlighting the financial strength behind its earnings growth.
These parts together support the stock’s place in a high-growth momentum screen. The method looks for companies with clear, speeding business momentum, which FAF currently shows through its earnings beats, margin growth, and healthy cash flow increase.
Technical Health & Trend Strength
While fundamental momentum finds the "what" to buy, technical analysis aids with the "when." First American Financial’s technical profile is healthy, receiving a ChartMill Technical Rating of 8. This score shows the stock’s solid position within its existing trends.
- Positive Trend Agreement: Both the short-term and long-term trends for FAF are graded as positive, a very good sign that suggests agreement across different time frames.
- Industry Outperformance: The stock is a relative strength front-runner within its sector, doing better than 72% of its peers in the Insurance industry. This is a key point for momentum methods that concentrate on market leaders.
- Price Level: FAF is now trading in the higher part of its 52-week range, showing continued buying pressure. It sits above all its main simple moving averages (20, 50, 100, and 200-day), which are all in rising patterns, a classic mark of a healthy uptrend.
A full look at the stock’s support and resistance levels, with the complete technical analysis, is found in the ChartMill Technical Report for FAF.
The Setup: A Consolidation Before the Next Move
A high Technical Rating alone does not always give a best entry point; a stock can be stretched and likely to pull back. This is where the Setup Rating becomes key. FAF has a Setup Rating of 7, showing it is coming out of a consolidation phase, giving a clearer risk/reward view.
- Consolidation Pattern: The technical report states that prices have been consolidating recently within a one-month range. This time of pause after an advance lets the stock absorb its gains and form a base for a possible next step higher.
- Clear Support & Resistance: The setup finds a defined support area between $65.84 and $66.59, made from a mix of moving averages and trendlines. On the other hand, immediate overhead resistance is small, noted near $68.13. This shape allows for a planned trade idea with a logical stop-loss level below support and a breakout level above resistance.
- Supportive Activity: The report also notes a recent "Pocket Pivot" signal, a price increase on higher-than-normal volume, which can point to accumulation by institutional investors.
For a momentum investor, this setup is important. It gives a possible entry point, a breakout above the recent range, with a controlled risk level, a stop below the consolidation support, matching the solid fundamental story with a technically sound buying chance.
Finding Similar Opportunities
First American Financial Corp shows the kind of opportunity a joined momentum and technical setup screen tries to find: a company with speeding fundamentals, solid relative strength, and a chart pattern hinting at a possible continuation of its trend.
This particular screen, which selects for a High Growth Momentum Rating above 4, a Technical Rating above 7, and a Setup Rating above 7, is made to produce a short list of such candidates. You can run this screen yourself and see the present results by using this link: High Growth Momentum Breakout Setups Screen.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The analysis is based on data provided and screen parameters described. Investors should conduct their own due diligence and consider their individual financial circumstances and risk tolerance before making any investment decisions. Past performance is not indicative of future results.
