3 Momentum Stocks With Major Upside Potential

At the halfway point for 2025, the stock market is relatively unchanged year over year, with a measly 1.5% gain. 

Of course, a lot has happened between then and now — like the fact that the market tumbled nearly 20% between mid-February and early-April, then recovered about 95% of these losses in the next few weeks. 

That rally was impressive — but it appears to have paused, with the S&P 500 trading in a range between 5,800 and 6,000.

In today’s newsletter, we are going to discuss why the odds favor a continuation of this rally, and 3 stocks that are poised to outperform.

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The Wall of Worry

It may seem counterintuitive, but often, skepticism provides fuel for market advances as many investors remain on the sidelines. 

Consider our current circumstances. YTD, the S&P 500 is up just under 2% and off by 4% from all-time highs in mid-February. Yet, there’s a major difference as many fund managers are now underweight stocks as they reduced exposure and shifted positioning when the market was cascading lower. 

This also means that they are underperforming and would be forced to chase prices higher if the market’s advance continues. If they underperform their benchmarks for long periods of time, they are at risk of outflows and/or losing their jobs. 

The risk of this happening is also amplified given that earnings remain quite strong despite a host of challenges. This is underscored by Q1 S&P 500 earnings increasing by 13.8% in Q1 compared to expectations of 8.8% prior to earnings season. 

In terms of tariffs, the administration has moved away from an extreme position and is now looking merely to strike more favorable trade deals. Additionally, its primary focus has now shifted to tax cuts which is another potential bullish catalyst.

Similarly, monetary policy has shifted in a slightly more dovish direction with softer economic data and recent chatter from FOMC officials that rate cuts could arrive as soon as July. 

Overall, we have a supportive situation for the stock market. The economy is strong enough to support earnings growth, but it’s weakening enough to shift the Fed in a more dovish direction. Additionally, major risks in terms of escalating tariffs and rate hikes seem to have passed, while the passage of tax cuts is another looming catalyst. 

3 Momentum Stocks to Consider

Momentum stocks capitalize on investor FOMO as capital flows into trending names. Many fund managers will target liquid, leading stocks in order to keep up with their benchmarks, and these lists will be dominated by momentum as well.

The Zen Ratings can help you identify the top momentum stocks in the market. Further, the system differentiates between momentum stocks that are being driven by fundamental improvements rather than more durable factors. 

In today’s article, I want to highlight 3 momentum stocks that look poised to outperform if the market’s current consolidation period resolves higher…

1. X Financial (XYF)

X Financial (XYF) is a Chinese online personal finance platform which offers consumer credit products and home loans. The company has an AI credit rating model which processes over 1 million loan applications per month. 

Investing in Chinese stocks is certainly risky, but the upside is tantalizing, especially given that many of the risks seem priced in and are the primary factor for these stocks’ underperformance over the last decade. 

The Chinese government also is looking to boost the domestic economy and stimulate consumer spending as it shifts away from being an export-dependent economy. Further, Chinese consumers are underlevered compared to those in other countries which means more growth potential. 

Earnings projections are bullish as analysts anticipate 29% earnings growth for the full year due to improving loan quality and better credit ratings. Technicals are also quite strong for the stock as it sports more than a 100% YTD gain and has consolidated in a tight range over the past month.

XYF is rated a Strong Buy (A) by the Zen Ratings. It also ranks in the top 1% for Momentum out of our universe of 4,600 stocks. This isn’t surprising given that it's one of the strongest performing stocks in the market and is in the midst of an acceleration in revenue while also seeing margins expand.  

2. Sprouts Farmers Market (SFM)

Sprouts Farmers Market (SFM) is a specialty grocery retailer with a focus on organic products. It’s not surprising that the company ranks high in momentum given that it's seeing strong growth in terms of adding new locations, foot traffic, same-store sales, and transaction size. 

SFM benefits from an increased interest in healthy eating and higher demand for organic products. It’s also largely insulated from macro headwinds given that it sources most of its products locally and domestically. Additionally, spending on groceries tends to increase when economic conditions get shakier as people eat out less. 

SFM is a standout with a 30% gain YTD. And, this momentum is likely to persist given its strong earnings growth in addition to a favorable macro environment. The Zen ratings model is also bullish on SFM given its overall Buy (B) Zen Rating, placing it in a class of stocks that have produced an annual return of 19.9% since 2003.

SFM is also a part of the Zen Investor portfolio. Each stock in the Zen Investor portfolio is hand-picked by 40+ year market veteran Steve Reitmeister, who uses a rigorous 4-step screening process to locate the highest-potential stocks. Click here to check out other stocks in the Zen Investor portfolio. 

3. FirstCash Holdings, Inc. (FCFS)

FirstCash (FCFS) is a pawn store operator and provides technology-driven point-of-sale payment solutions for others. Currently, it operates more than 3,000 stores in 29 states and several Latin American countries with a strategy to grow through acquisitions and opening new locations. 

In addition to this secular growth, FCFS is a beneficiary of a weakening economy and increasing consumer stress as its primary sources of revenue are pawn lending and retail sales of merchandise. 

Another indication of momentum is that the company has topped earnings expectations for 20 straight quarters, accompanied by double-digit increases in annual EPS. Further, growth is being driven by its American First Finance (AFF) segment which offers lease-to-own and retail finance payment solutions for over 13,000 merchants and has higher margins.  

The Zen Ratings are also bullish on FCFS as it has an overall Strong Buy (A) rating, which places it in a class of stocks that have produced an annual return of 32.5% since 2003. 

In terms of momentum, FCFS is rated a B which is consistent with its strong earning performance. Further, the stock is up 24% YTD and looks poised to break out to new highs if the bull market continues. 

Conclusion

Conditions are ripe for a FOMO-led surge higher. 

Momentum stocks will be where capital flows first given that many of these stocks are already under accumulation, outperforming, demonstrating impressive earnings growth, and are poised to break out to new highs.

What to Do Next?

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• See All “A” Rated Stocks with +32.52% Average Annual Return >
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