As fall hayrides get into full swing, finding hot stocks has been like, well, finding a needle in a haystack.

The S&P 500 entered this week on a three-week losing streak after the Federal Reserve proclaimed “higher for longer” interest rates to ward off inflation. J.P. Morgan CEO Jamie Dimon stirred up the witch's brew on Tuesday, warning that a 7% worst-case rate scenario would create undue stress on the U.S. banking system. 

So after climbing to a 15-month high in late July, two three-week losing streaks in eight weeks has the S&P 500 up approximately 12% for the year — but down nearly 4% so far this quarter. Its higher risk mid-cap counterpart, the S&P 400, is down 5% quarter-to-date (QTD). As stocks limp to the Q3 finish line, traders face a tough dilemma — stick with 2023 winners that have pulled back…or shift to new names that are going against the Q3 tide?

Opting for the latter would be in line with a short-term momentum strategy. Momentum is the rate at which a stock’s price is accelerating (or decelerating). Traders that base buy decisions on momentum use a wide range of metrics that tell them how fast stocks are moving relative to others. Technical indicators called oscillators and earnings estimate changes are popular tools of the trade. 

No matter what combination of metrics are used, momentum is about identifying hot stocks that are likely to stay hot. The second tenant is most critical because stocks that go up a lot in a short amount of time can be most prone to profit-taking sell-offs. Other short-term winners can be just getting started. 

In the mid-cap space, there are a surprising number of bullish momentum candidates. While most S&P 400 stocks are in the red this quarter, more than 50 are up 10% or more. Retailers like Ollie’s Bargain Outlet (+33% QTD) and Williams-Sonoma (+25 QTD) are hot — but maybe a bit too hot. 

The low volatility of these three mid-caps makes them less likely to fall with the autumn leaves. 

Why Is CRS Stock Doing So Well? 

Carpenter Technology Corporation (NYSE: CRS) is a steel company that makes specialty alloys primarily for aerospace and defense customers but also the consumer, medical and energy end markets. It has a record order backlog tied to the global travel rebound along with surging demand from oil and gas customers who are capitalizing on higher commodity prices. Solid contributions from all operating segments and 10 straight quarters of backlog growth have Carpenter shares trading at a nine-year high. 

The stock has doubled over the past 12 months and is gaining steam in a down market. Earnings estimates have been trending higher as Wall Street continues to play catch up with Carpenter’s recovery story. Earlier this month, Benchmark Co. gave CRS a $100 price target that implies another 46% upside from current levels. Building a position in Carpenter could amount to some significant gains.

Is it Too Late to Buy FLR Stock?

Fluor Corporation (NYSE: FLR) is up 25% so far this quarter as it continues to rebound from pandemic lows. The provider of engineering, procurement, construction and maintenance (EPCM) services broke a five quarter negative earnings surprise streak in a resounding fashion on August 4th. Its normally docile stock gapped up more than 15% in heavy volume and keeps catching a bid on pullbacks. 

In the process, the 50-day moving average crossed over the 200-day moving average this month, a bullish chart development that often leads to a lasting uptrend. When the ‘golden cross’ appeared on FLR’s chart a year ago, the stock ran from roughly $23 to $38 in less than six months.

After witnessing growth from all three end markets in Q2 (energy, infrastructure and government), management drastically raised its 2023 earnings per share (EPS) guidance from $1.70 to $2.15 at the midpoints. At 17x earnings, there is still ample room for multiple expansions to FLR’s 21x peer group average.

Does BJ Stock Have More Upside?

BJ’s Wholesale Club Holdings, Inc. (NYSE: BJ) is rebounding strongly off a 52-week low. The warehouse club retailer has gone up in each of the last four months — and each time in accelerating fashion. It has climbed 9% in September, while the S&P 400 has slumped 6%. The 15% outperformance stems from better-than-expected second-quarter earnings that were aided by “grocery disinflation.” As inflation slows, BJ’s uptrend is speeding up in part because Costco management is also sounding more upbeat as of late. 

Meanwhile, BJ’s is going full speed ahead with its plan to expand its predominantly Northeast footprint. Last month, the company announced that a new club will open in Goodlettsville, Tennessee, marking its third location in the state. Since then, two Wall Street analysts have called the stock a buy with matching $80 targets. BJ’s mid-November earnings report will be pivotal as will the success of its move to offer a wider assortment of holiday toys.