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Three stocks to buy as momentum names hit new highs: Oppenheimer technician

Three momentum stocks to buy on the breakout
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Three momentum stocks to buy on the breakout

Momentum stocks are finding their flow again.

The MTUM momentum ETF hit an all-time high Monday for its third day in a row, coming back from a weaker stretch earlier in the summer.

The ETF tracks 124 stocks considered high momentum. Those are shares with steady price appreciation and low volatility over a three-year period.

Ari Wald, head of technical analysis at Oppenheimer, sees three of those stocks breaking out even further.

Palo Alto Networks

Palo Alto Networks "moved higher Friday, breaking out to the upside and new highs for the year," Wald said on CNBC's "Trading Nation" on Monday.

Like the MTUM, the cybersecurity tech company reached an all-time intraday high on Monday for its third straight session. Its shares are also up 57 percent this year.

"More importantly here's a stock that's getting through resistance, three-year resistance dating back to its peak of 2015. This is a major breakout that we think has legs to it," added Wald. "Stick with it, we think Palo goes higher."

Palo Alto Networks had failed to break through $200 until May. It is now trading 14 percent above that level.

Cisco

"Cisco Systems, also breaking higher, [is] coming out of what we would call a bullish pennant pattern," said Wald. "This was all following a breakout of 10-year resistance."

A bullish pennant pattern marks a period of consolidation after rallying, suggesting a stock is taking a breather before continuing its move higher.

Cisco quickly advanced from around $30 in August 2017 to a peak of $45 in March. It is now breaking higher after trading range bound since then.

Dollar General

Outside of tech, Wald sees continued moves higher for bargain store chain Dollar General, which reports earnings Thursday.

"Dollar General [is] breaking out through $105 resistance. I think that level now becomes support," said Wald.

The retailer broke out above $105 in mid-August, a level it briefly reached but failed to hold in January.

Michael Bapis, managing director of The Bapis Group at HighTower Advisors, likes Dollar General, but would steer clear of the rest of the momentum space.

"We think the momentum names have raced way ahead of where they should be," Bapis told "Trading Nation" on Monday. "They're all trading at super high P/Es."

The MTUM ETF trades at a price-to-earnings ratio of 21 times forward earnings, higher than the 17 times multiple on the .

"We think the momentum names are going to take a breather and there's going to be a sector rotation into the fundamental value names that haven't moved as much," added Bapis.

Value stocks are prized for their low valuations relative to peers. The S&P 500 value ETF trades at a 14 times multiple.

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