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5 Breakout Stocks for Marvelous Returns

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Active investors often utilize a breakout investment strategy in their search for strong returns. This involves zeroing in on stocks trading within a tight range and buying them when they step out of this band. In keeping with this approach, they are offloaded whenever they move below this narrow band. If properly implemented, such a strategy could deliver impressive returns.

Identifying Breakout Levels

The key to this strategy is calculating the support and resistance levels of a stock. The floor of a stock’s trading channel is its support level and it should be sold as soon as it threatens to fall lower. On the other hand, the resistance is a stock's breakout level and it can gain substantially if it breaks the resistance level.

When a stock is close to its support level, demand is literally hitting the floor. On the other hand, demand rises when it is breaching its resistance level, signaling the right time to make a lucrative addition to your portfolio. The idea is to pick stocks which have just broken above their resistance barriers or are very closing to doing so.

Checking Whether It’s for Real

Stocks that have breached their resistance levels 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 $20 (Stocks which are reasonably priced.)

These criteria narrow down the universe of over 7,700 stocks to only 13.

Here are the top five stocks that met these criteria:

Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 68.1%.

1st Constitution Bancorp occupies an enviable position as one of New Jersey's few independent community banks. It has an average EPS surprise over the last four quarters 16.6% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carrols Restaurant Group, Inc. (TAST - Free Report) is an operator of Burger King franchisee restaurants. Carrols Restaurant has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 159.7%.

Kosmos Energy Ltd. (KOS - Free Report) operates as an oil and gas exploration and production company focused on under-explored regions in Africa. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 12.1%.

Banco Bradesco S.A. (BBD - Free Report) is a Brazil-based provider of banking and insurance services. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 6.1%.

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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Banco Bradesco SA (BBD) - free report >>

Carrols Restaurant Group, Inc. (TAST) - free report >>

Kosmos Energy Ltd. (KOS) - free report >>

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