Selecting breakout stocks continues to be one of the most popular methods utilized by 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 offload it from your portfolio. However, a stock breaking above this channel carries the promise of delivering strong gains.
Picking Prospective Candidates
In order to identify breakout stocks, you must first determine their resistance and support levels. A resistance level is the barrier which must be broken so as to be identified as a breakout stock. Meanwhile, a support level is the floor for the stock’s movement.
At the breakout level, the demand for the stock has peaked, making it a natural choice for traders. On the other hand, when a stock hits the support floor, traders are eager to offload it. In order to spot breakout stocks, you would have to see which of these are on the brink of breaking the resistance barrier or those that have just breached this level.
Determining Whether It’s for Real
Stocks which 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.
• 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.)
• 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 7869 stocks to only 19.
Here are the top five stocks that meet these criteria:
Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is a provider of adventure travel and expedition cruising services. Lindblad Expeditions has a Zacks Rank #1 (Strong Buy) and its average EPS surprise for the last four quarters is more than 100%.
Cleveland-Cliffs Inc (NYSE:CLF) is an iron ore mining company primarily in the United States. Cleveland-Cliffs’ average EPS surprise for the last four quarters is 49.9%. Cleveland-Cliffs has a Zacks Rank #1.
Marine Products Corp. (NYSE:MPX) is the third-largest distributor of sterndrive powerboats in the United States. Marine Products has a Zacks Rank #2 (Buy) and its average EPS surprise for the last four quarters is 15.3%.
Iradimed Corp (NASDAQ:IRMD) engages in developing, manufacturing, marketing, and distributing magnetic resonance imaging (MRI) compatible products. IRadimed has a Zacks Rank #2 and its average EPS surprise for the last four quarters is more than 100%.
ChannelAdvisor Corp (NYSE:ECOM) offers cloud-based e-commerce solutions and services. ChannelAdvisor has a Zacks Rank #2 and its average EPS surprise for the last four quarters is 46%.
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.
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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