Selecting breakout stocks continues to be one of the most popular methods utilized by active investors. This technique seeks to identify stocks with prices moving within a specific band. In case a stock falls below the lower bound of this band, it may be time to offload it from your portfolio. However, a stock breaking this channel carries the promise of delivering strong gains.
Spotting Breakout Stocks
The first step to selecting breakout stocks 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, the demand for a stock is 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.
Verifying Whether It’s for Real
Stocks which have breached their resistance level should ideally be in high demand among traders. But the test of a genuine breakout is seeing whether they go on to attain higher prices with the old barrier becoming a 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.
• 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 6,851 stocks to only 17.
Here are five of the 17 stocks that passed the screen:
BioDelivery Sciences International, Inc. BDSI is a commercial-stage specialty pharmaceutical company dedicated to treating patients with chronic conditions. The company has a Zacks Rank #2 (Buy) and its expected earnings growth for the current year is 78.5%.
Air Industries Group AIRI is an integrated manufacturer of precision equipment assemblies and components for leading aerospace and defense contractors. The company’s expected earnings growth for the current year is 81.8%. Air Industries sports a Zacks Rank #2.
Cross Country Healthcare CCH is a provider of innovative healthcare workforce solutions and staffing services. The company has a Zacks Rank #1 and its expected earnings growth for the current year is 12.5%.
Hallmark Financial Services, Inc. HALL is a Zacks Rank #2 specialty property and casualty insurance company. The company’s expected earnings growth for the current year is 44.6%.
Vector Group Ltd. VGR is a manufacturer and seller of cigarettes. Vector Group has a Zacks Rank #2 and its expected earnings growth for the current year is 17.7%.
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.
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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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Air Industries Group (AIRI) : Free Stock Analysis Report
Hallmark Financial Services, Inc. (HALL) : Free Stock Analysis Report
BioDelivery Sciences International, Inc. (BDSI) : Free Stock Analysis Report
Vector Group Ltd. (VGR) : Free Stock Analysis Report
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