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Selecting breakout stocks is possibly one of the most popular active investing techniques. The idea behind picking stocks in this manner is to identify which stocks are trading within a narrow channel. These stocks are to be bought as soon as they move above this band and are sold when they fall below. In case a stock moves above this band, it usually gains momentum. When utilized judiciously, the strategy yields substantive gains, which is the reason for its enduring popularity.
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.
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 when 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.
Screening Parameters
• Percentageprice 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 17.
Here are the top 5 stocks that meet these criteria:
B2Gold Corp. (BTG - Free Report) is involved in the exploration and development of gold. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 16.7%.
Hecla Mining Co. (HL - Free Report) is a silver mining company focused on the growth of its silver production, reserves and resources in Mexico. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%.
Extreme Networks Inc. (EXTR - Free Report) is a leading provider of a next generation of switching solutions that meet the increasing needs of enterprise local area networks internet service providers and content providers. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is more than 100%.
RealNetworks Inc. is a leading provider of branded software products and services that enable the creation and real-time delivery and playback of audio, video, text, animation and other media content over the Internet and intranets on both a live and on-demand basis. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 29.4%.
LG Display Co., Ltd. (LPL - Free Report) primarily manufactures and sells thin film transistor liquid crystal display (TFT-LCD) panels. It has a Zacks Rank #1 and its earnings estimate for the current year has improved by more than 100% over the last 30 days.
While backtesting over a two-year timeframe (Aug 1, 2014 to Aug 5, 2016), considering a four-week holding period, a portfolio following this strategy provided a total return of 35.6% compared with the S&P 500’s return of 9.3%. For investors with a reasonably high risk appetite, this strategy provides rich rewards.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Breakout Stocks for Remarkable Returns
Selecting breakout stocks is possibly one of the most popular active investing techniques. The idea behind picking stocks in this manner is to identify which stocks are trading within a narrow channel. These stocks are to be bought as soon as they move above this band and are sold when they fall below. In case a stock moves above this band, it usually gains momentum. When utilized judiciously, the strategy yields substantive gains, which is the reason for its enduring popularity.
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.
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 when 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.
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 17.
Here are the top 5 stocks that meet these criteria:
B2Gold Corp. (BTG - Free Report) is involved in the exploration and development of gold. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 16.7%.
Hecla Mining Co. (HL - Free Report) is a silver mining company focused on the growth of its silver production, reserves and resources in Mexico. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is more than 100%.
Extreme Networks Inc. (EXTR - Free Report) is a leading provider of a next generation of switching solutions that meet the increasing needs of enterprise local area networks internet service providers and content providers. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is more than 100%.
RealNetworks Inc. is a leading provider of branded software products and services that enable the creation and real-time delivery and playback of audio, video, text, animation and other media content over the Internet and intranets on both a live and on-demand basis. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 29.4%.
LG Display Co., Ltd. (LPL - Free Report) primarily manufactures and sells thin film transistor liquid crystal display (TFT-LCD) panels. It has a Zacks Rank #1 and its earnings estimate for the current year has improved by more than 100% over the last 30 days.
While backtesting over a two-year timeframe (Aug 1, 2014 to Aug 5, 2016), considering a four-week holding period, a portfolio following this strategy provided a total return of 35.6% compared with the S&P 500’s return of 9.3%. For investors with a reasonably high risk appetite, this strategy provides rich rewards.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »