5 Cheap Breakout Stocks Offering Spectacular Returns
Possibly one of the most preferred methods for those using an active investing approach, selecting breakout stocks offers the promise of substantial returns. This approach involves identifying those stocks whose prices are varying within a narrow band.
If the price of astock falls below this channel, it could be the best time to sell it off. However, the best time to buy a stock as per this strategy is when it is about to break above this trading band. Such stocks offer the prospect of impressive gains.
Identifying Breakout Stocks
The first step to selecting the right 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 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.
Is this a Genuine Breakout?
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 genuine 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 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 equal to #2 (Only Buy ranked stocks can get through. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 7860 stocks to only 15.
Here are the top five stocks that meet these criteria:
Lakeland Industries, Inc. LAKE is a manufacturer and seller of a wide variety of safety garments and accessories for the industrial and public sectors. Lakeland Industries’ average EPS surprise over the last four quarters is 1.3%
Camtek Ltd. CAMT designs, develops, manufactures, and markets automatic optical inspection systems and related products. Camtek’s average EPS surprise over the last four quarters 7.8%.
Newpark Resources, Inc. NR is a worldwide provider of value-added drilling fluids systems, and composite matting systems used in oilfield and other commercial markets. Newpark Resources’ average EPS surprise over the last four quarters is 78.6%
First BanCorp. FBP is the holding company for FirstBank Puerto Rico which offers a variety of products and services to individual and institutional customers. First BanCorp’s average EPS surprise over the last four quarters is 52.2%.
Sunstone Hotel Investors, Inc. SHO is a Southern California-based lodging real estate company that expects to qualify as a real estate investment trust (REIT) for federal income tax purposes. Sunstone Hotel Investors’ average EPS surprise over the last four quarters is 4.8%.
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.
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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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First BanCorp. (FBP) : Free Stock Analysis Report
Camtek Ltd. (CAMT) : Free Stock Analysis Report
Newpark Resources, Inc. (NR) : Free Stock Analysis Report
Lakeland Industries, Inc. (LAKE) : Free Stock Analysis Report
Sunstone Hotel Investors, Inc. (SHO) : Free Stock Analysis Report
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