Exciting developments are taking place for the stocks in this article. They’ve all surged ahead of the broader market over the last month as catalysts such as new products and positive media coverage have propelled their returns.

However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. All that said, here are two stocks we think live up to the hype and one best left ignored.

One Momentum Stock to Sell:

Encompass Health (EHC)

One-Month Return: +20.6%

With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.

Why Does EHC Give Us Pause?

1. Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 4 percentage points
2. Annual earnings per share growth of 4.6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
3. Free cash flow margin dropped by 2.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Encompass Health is trading at $116.64 per share, or 23.8x forward P/E. If you’re considering EHC for your portfolio, see our FREE research report to learn more.

Two Momentum Stocks to Watch:

Badger Meter (BMI)

One-Month Return: +33.1%

The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE: BMI) provides water control and measure equipment to various industries.

Why Will BMI Outperform?

1. Annual revenue growth of 20% over the last two years was superb and indicates its market share increased during this cycle
2. Earnings per share have massively outperformed its peers over the last two years, increasing by 36.6% annually
3. Strong free cash flow margin of 15.3% enables it to reinvest or return capital consistently

At $230.05 per share, Badger Meter trades at 48.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

Leonardo DRS (DRS)

One-Month Return: +40.7%

Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.

Why Should DRS Be on Your Watchlist?

1. Sales pipeline is in good shape as its backlog averaged 54.4% growth over the past two years
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 18% annually, topping its revenue gains
3. Free cash flow margin expanded by 4.7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends

Leonardo DRS’s stock price of $42.93 implies a valuation ratio of 38.6x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.