4 Affordable Breakout Stocks for Stunning Returns
Choosing breakout stocks is probably one of the most popular techniques used by active investors. The logic behind this strategy for stock selection is to identify stocks trading within a narrow band. Such stocks should be purchased as soon as they move above this channel and sold when they fall below. In case a stock moves above this band, it usually gains momentum.
However, market watchers often caution against timing such a move incorrectly. This is because there is a significant risk of identifying stock movements as breakouts, even when this is not the case. At the same time, when utilized correctly, this strategy yields substantive gains, which is the reason for its enduring popularity.
To that end, TimkenSteel Corporation TMST, Extreme Networks, Inc. EXTR, CrossFirst Bankshares, Inc. CFB, and Wipro Limited WIT have been selected as the breakout stocks for today.
Determining Breakout Levels
The first step to selecting the right breakout stock is to calculate its support and resistance level. 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, the 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 portfolios. The key to identifying breakout stocks is to zero in on those that are on the verge of a breakout or those that have just broken above the resistance level.
Has a Genuine Breakout Occurred?
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is at all genuine is another matter altogether.
For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price, which may not seem attractive at first glance.
Screening Parameters
• Percentage price change over four weeks between 10% and 20% (Stocks showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks 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) or 2 (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 that 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 more than 7,706 stocks to only nine.
Here are four of the nine stocks that passed the screen:
TimkenSteel Corporation engages in manufacturing alloy steel, as well as carbon and micro-alloy steel. TMST provides air-melted alloy steel bars, tubes, and precision components, as well as value-added services, including thermal treatment and machining.
Timken Steel carries a Zacks Rank #1 and has an expected earnings growth rate of more than 100% for the current year.
Extreme Networks, Inc. is a provider of a next generation of switching solutions that meet the increasing needs of enterprise local area networks internet service providers and content providers.
Currently, Extreme Networks carries a Zacks Rank #2 and has an expected earnings growth rate of 31.6% for the current year.
CrossFirst Bankshares, Inc. is a bank holding company which, through its wholly-owned subsidiary CrossFirst Bank, provides personal banking, wealth management, loans, savings accounts, leasing, retirement plans, investment management and insurance services to businesses.
CrossFirst carries a Zacks Rank #2 and has an expected earnings growth rate of more than 100% for the current year.
WiproLimited is a provider of comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally.
Wipro carries a Zacks Rank #2 and has an expected earnings growth rate of 11.5% for the current year.
You can get the rest of the stocks on this list 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.
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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.
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Wipro Limited (WIT) : Free Stock Analysis Report
Extreme Networks, Inc. (EXTR) : Free Stock Analysis Report
Timken Steel Corporation (TMST) : Free Stock Analysis Report
CrossFirst Bankshares, Inc. (CFB) : Free Stock Analysis Report
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