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5 Bargain Breakout Stocks Delivering Impressive Returns

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One of the most popular methods utilized by active investors is to select breakout stocks. The technique utilized to identify such stocks is to pick those whose price is fluctuating within a specific band. In case a stock falls below the floor 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.

Spotting 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 which have just breached this 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 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 $15 (Stocks which are reasonably priced.)

These criteria narrow down the universe of over 7,700 stocks to only 12.

Here are the top 5 stocks that meet these criteria:

Intrawest Resorts Holdings, Inc. (SNOW - Free Report) is a mountain resort and adventure company which delivers vacation and travel experiences to its customers. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 8.4%.

AXT Inc. (AXTI - Free Report) is a designer, developer, manufacturer and distributor of single and compound element semiconductor substrates. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is 50%.

Care.com, Inc. provides an online platform which helps to search for and manage family care. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 55.1%.

Entegris, Inc. (ENTG - Free Report) provides materials management solutions for the semiconductor industry which assure the integrity of materials as they are handled, stored, processed and transported. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 15.7%.

ChannelAdvisor Corporation offers cloud-based e-commerce solutions and services. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 58.1%.

While backtesting over a two-year timeframe (May 16, 2014 to May 20, 2016), considering a four-week holding period, a portfolio following this strategy provided a total return of 37.8% compared with the S&P 500’s return of 8.4%. 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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