Richard Herman Driehaus, renowned American businessman and fund manager, created an investment approach using the theory of buy high and sell higher. This strategy is perfect for investors with the propensity to take high levels of risk. Using this particular strategy, investors can buy momentum stocks. The eventual success of this investment strategy helped Driehaus earn a place in Barron’s All-Century Team.
The American Association of Individual Investors (“AAII”) proved that the strategy has the potential to offer high returns. Thus, investors with a high-risk appetite might give the Driehaus strategy a shot to boost returns.
A Brief Note on Driehaus’ Strategy
Regarding the strategy, Driehaus once said, “I would much rather invest in a stock that’s increasing in price and take the risk that it may begin to decline than invest in a stock that’s already in a decline and try to guess when it will turn around.” In keeping with his insight, AAII took into account the percentage 50-day moving average as one of the key criteria before designing a portfolio.
It is calculated by dividing the numerator (month-end price minus 50-day moving average of month-end price) by the 50-day moving average of the month-end price. Another momentum indicator – positive relative strength – has also been included. A positive percentage 50-day moving average indicates that the stock is trading at a price higher than its 50-day moving average level, indicating an uptrend.
Moreover, AAII found that Driehaus primarily focused on strong earnings growth rates and impressive earnings projections to pick potential outperformers. Companies with a strong history of beating estimates are also given importance in this strategy, which was made to provide better returns over the long term.
In order to make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Momentum Score of A or B. Our research shows that stocks with a
Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. • Zacks Rank equal to #1
No matter whether the market is good or bad, stocks with a Zacks Rank #1 have a proven history of outperformance. You can see
. the complete list of today’s Zacks #1 Rank stocks here
Last 5-year average EPS growth rates above 2%
Strong EPS growth history ensures improving business
Trailing 12-month EPS growth greater than 0 and industry median
Higher EPS growth compared to the industry average indicates superior earnings performance
Last four-quarter average EPS surprise greater than 5%
Solid EPS surprise history indicates better price performance
Positive percentage change in 50-day moving average and relative strength over 4 weeks
Positive percentage change in 50-day moving average and relative strength signal uptrend
Momentum Score equal to or less than B
A favorable momentum score indicates that it is ideal to take advantage of the momentum with the highest probability of success.
These few parameters have narrowed down the universe of over 7,175 stocks to only 18.
Here are five of the 18 stocks:
Ameris Bancorp ( ABCB Quick Quote ABCB - Free Report) is the bank holding company for Ameris Bank. It has a Momentum Score of A and a trailing four-quarter earnings surprise of 22.4%, on average. Citizens Community Bancorp, Inc. ( CZWI Quick Quote CZWI - Free Report) is the bank holding company for Citizens Community Federal N.A. It has a Momentum Score of B and a four-quarter earnings surprise of 24.5%, on average. The Goldman Sachs Group, Inc. ( GS Quick Quote GS - Free Report) is a provider of financial services for corporations, financial institutions, governments, as well as individuals. It has a Momentum Score of A. The trailing four-quarter earnings surprise is 53.5%, on average. Louisiana-Pacific Corporation ( LPX Quick Quote LPX - Free Report) is a manufacturer of building materials and engineered wood products in the United States, Canada, Chile and Brazil. It has a Momentum Score of B. The trailing four-quarter earnings surprise is 41.5%, on average. Ultra Clean Holdings, Inc. ( UCTT Quick Quote UCTT - Free Report) is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. It has a Momentum Score of A and a trailing four-quarter earnings surprise of 35.6%, on average.
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. 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 .