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5 Breakout Stocks Under $20

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The breakout strategy is probably the most commonly used one by active investors. The approach is fairly easy at first glance. You would have to pick stocks which are trading within a narrow range, sell them when they move below this band and buy them as soon as they move above. Once you buy a breakout stock, substantial rewards might be in store for you.

However, the strategy has its fair share of detractors. Those who believe that the approach could be erroneous point out that timing such a move incorrectly could be disastrous. At the same time, when applied carefully, breakout strategies can yield lucrative gains for investors.

Selecting Breakout Candidates

In order to select breakout stocks you must first determine its resistance and support 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.

At the support level, the demand for a stock is at its lowest and so most traders are willing to sell it. On the other hand, most traders are willing to go long on the stock at the resistance level, which means that they would like to add them to their portfolios. The most important thing to consider when selecting breakout stocks is to determine which ones are on the verge of a breakout or those that have just broken above the resistance level.

Identifying Breakout Levels Correctly

When a stock moves above its resistance level, its demand among traders should be high. However, what must be considered in order to determine whether this is a genuine breakout is to see if they go on to attain higher prices and the old barrier becomes a new support. This will indicate whether a long-term price trend is about to emerge.

In order to ascertain whether the existing trading channel has been breached effectively, it is important to study long term trends. This will indicate 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.)

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

These criteria narrow down the universe of over 7,800 stocks to only 7.

Here are the top 5 stocks that meet these criteria:

Entercom Communications Corp.

BioTelemetry, Inc. (BEAT - Free Report)

First Majestic Silver Corp. (AG - Free Report)

BG Staffing, Inc.  (BGSF - Free Report)

Orrstown Financial Services Inc.  (ORRF - Free Report)

While backtesting over a two-year timeframe(May 16, 2014 to May 13, 2016), considering a four-week holding period,a portfolio following this strategy provided a total return of 32.9% compared with the S&P 500’s return of 7.3%.For investors with a reasonably high risk appetite, this strategy provides rich rewards.

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.

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