U.S. markets closed

4 Affordable Breakout Stocks for Stunning Returns

Nitish Marwah

Selecting breakout stocks continues to be one of the most popular methods among active investors. This technique seeks to identify those stocks whose prices are varying within a specific band. In case a stock falls below the lower bound of this band, it may be time to dump it from your portfolio. However, a stock breaking above this channel carries the promise of delivering strong gains.

Spotting Breakout Stocks

The first step to selecting the right breakout stock is to calculate their support and resistance levels. A support level is the lower bound for stock movements while a resistance level refers to the maximum price which it trades within over a considerable period.

In other words, demand for a stock is at its lowest at its support level, which means most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, which means that they would like to add them to their portfolio. The key to identifying breakout stocks is to pin down those that are on the verge of a breakout or those that have just broken above the resistance level.

Verifying Whether It’s for Real

Stocks that have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is whether they go on to attain higher prices and the old barrier becomes a new support. This is why it is important to determine whether a long-term price trend is about to emerge.

Only a study of long-term trends can determine whether the existing trading channel has been breached effectively. This indicates the strength of the support or resistance levels. If you can identify the effective channel for a stock, picking it even at a not-so-reasonable price would give you significant returns.

Screening Parameters

• Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)

• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)

• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)

No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

• Beta for 60 months less than or equal to 2

(Stocks which move by a greater degree than the broader market but within a reasonable limit.)

• Current price less than or equal to $20 (Stocks which are reasonably priced.)

These criteria narrow down the universe of over 6,811 stocks to only 9.

Here are four of the 9 stocks that passed the screen:

China Distance Education Holdings Limited DL is a provider of online education and value-added services for professionals and corporate clients. The company carries a Zacks Rank #1. Its expected earnings growth for the current year is 39.7%.

Intellicheck IDN is a designer and manufacturer of radio frequency filter products. Intellicheck has a Zacks Rank #1 (Strong Buy). Its expected earnings growth for the current year is more than 100%.

Snap Inc. SNAP is a camera company. The company carries a Zacks Rank #2. Its expected earnings growth for the current year is more than 100%.

Mesoblast Limited MESO is a biopharmaceutical company. Its expected earnings growth for the current year is 49.8%. Mesoblast carries a Zacks Rank #2.

You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Click to get this free report China Distance Education Holdings Limited (DL) : Free Stock Analysis Report Snap Inc. (SNAP) : Free Stock Analysis Report Mesoblast Limited (MESO) : Free Stock Analysis Report Intellicheck Mobilisa, Inc. (IDN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research