Western Digital & 2 Momentum Stocks That Could Soar in 2026

Investors should focus on stocks with strong momentum to maximize returns this year. One way to uncover stocks with strong upside potential is to adopt Richard Driehaus’s “buy high and sell higher” strategy. His momentum-driven philosophy was designed to identify market-beating opportunities and ultimately helped him earn a spot on Barron’s All-Century Team.

Using Driehaus’s momentum-investing approach, Western Digital Corporation WDC, Caterpillar Inc. CAT and Datadog, Inc. DDOG have emerged as the top momentum picks, presenting attractive entry opportunities for investors now.  

The Driehaus Strategy: How to Spot Stocks With Strong Upside

Regarding the strategy, Driehaus once said: “I would much rather invest in a stock that’s increasing in price and take the risk that it may begin to decline than invest in a stock that’s already in decline and try to guess when it will turn around.” In line with this insight, the American Association of Individual Investors (“AAII”) considered the 50-day moving average one of the key criteria when creating a portfolio aligned with Driehaus’ philosophy.

It is calculated by dividing the numerator (month-end price minus 50-day moving average of month-end price) by the 50-day moving average of the month-end price. Another momentum indicator — positive relative strength — has also been included in this strategy. A positive percentage 50-day moving average indicates that the stock is trading above its 50-day moving average, signaling an uptrend.

Moreover, AAII found that Driehaus primarily focuses on strong earnings growth rates and impressive earnings projections to pick potential outperformers. Companies with a strong history of beating estimates are also prioritized in this strategy, which was designed to deliver better long-term returns. 

Research Wizard’s Key Criteria for Picking Winning Stocks

To make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Momentum Score of A or B. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

• Zacks Rank less than or equal to #2

Whether the market is good or bad, stocks with a Zacks Rank #1 or 2 have a proven track record of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here. 

• Last 5-year average EPS growth rates above 2% 

Strong EPS growth history ensures an improving business

• Trailing 12-month EPS growth greater than 0 and industry median

Higher EPS growth compared to the industry average indicates superior earnings performance 

• Last four-quarter average EPS surprise greater than 5%

Solid EPS surprise history indicates better price performance

• Positive percentage change in 50-day moving average and relative strength over 4 weeks

Positive percentage change in the 50-day moving average and the relative strength signal uptrend

• Momentum Score equal to or less than B

A strong momentum score suggests a favorable opportunity to capitalize on a stock’s upward trend with a higher probability of success.

These few parameters have narrowed the universe of more than 7,743 stocks to only 54.

Here are the top three of the 54 stocks: 

Western Digital 

Western Digital develops and sells HDD-based data storage devices and solutions across global markets. It has a Zacks Rank #2 and a Momentum Score of A. The trailing four-quarter earnings surprise for WDC is 10.1%, on average. The company’s expected earnings growth rate for the current year is 84.4% (read more: Chasing NVIDIA? Western Digital May Be the Smarter AI Bet). 

Caterpillar

Caterpillar provides construction and mining equipment, engines, turbines, and locomotives worldwide. It has a Zacks Rank #1 and a Momentum Score of A. The trailing four-quarter earnings surprise for CAT is 18.1%, on average. The company’s expected earnings growth rate for the current year is 39.6%. 

Datadog

Datadog provides cloud application monitoring and security solutions worldwide. It has a Zacks Rank #2 and a Momentum Score of A. The trailing four-quarter earnings surprise for DDOG is 15.4%, on average. The company’s expected earnings growth rate for the current year is 18.5%. 


 

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This article originally published on Zacks Investment Research (zacks.com).

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