Back to top

Image: Bigstock

5 Breakout Stocks Offering Stupendous Returns

Read MoreHide Full Article

Among the favorite methods for those utilizing an active investing approach, zeroing in on breakout stocks offers the promise of above-average returns. The process involves identifying those stocks whose prices are fluctuating within a narrow band. If the price of the stock falls below this channel, it could be the best time to sell of this stock. 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.

Spotting a Breakout Stock

The first step to selecting the right breakout stock is to calculate its support and resistance level. A support level is the lower bound for stock movement while a resistance level refers to the maximum price which it trades within over a considerable period.

In other words, 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.

Verifying 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 7882 stocks to only six.

Here are the top five stocks that meet these criteria:

VIVUS, Inc. is a biopharmaceutical company developing innovative, next-generation therapies to address unmet needs in obesity, diabetes and sexual health. The stock has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters 233.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Diversified Restaurant Holdings, Inc. is the creator, developer, operator and franchisor of ultra-casual restaurants and bars. Diversified Restaurant Holdings has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 45.8%.

Qumu Corporation provides enterprise video solutions. Qumu Corp has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 21.7%.

MiX Telematics Limited (MIXT - Free Report) is a provider of fleet and mobile asset management solutions. It has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 97%.

Aerohive Networks, Inc. (HIVE - Free Report) designs and develops a cloud-managed mobile networking platform that enables enterprises to deploy a mobile-centric network edge. Aerohive Networks has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 22%.

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.

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 »


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


HIVE Digital Technologies Ltd. (HIVE) - free report >>

MiX Telematics Limited (MIXT) - free report >>

Published in