Back to top

Image: Bigstock

4 Momentum Picks Screened on Driehaus Strategy

Read MoreHide Full Article

Richard Herman Driehaus, renowned American businessman and fund manager, created an investment approach using the buy high and sell higher theory. This strategy is perfect for investors who have 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.

Portfolios such as the American Association of Individual Investors (AAII) have proven time and again that the strategy has the potential to offer high returns. Thus, investors with a high-risk appetite may opt for this strategy.

To that end, we have selected Cowen Inc. , Laboratory Corporation of America Holdings (LH - Free Report) , Bath & Body Works, Inc. (BBWI - Free Report) and ArcBest Corporation (ARCB - Free Report) as the momentum picks for the day, using the Driehaus strategy.

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.

Screening Parameters

In order to make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #1 (Strong 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 (Buy), 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 7,738 stocks to only 24.

Here are four of the 24 stocks:

Cowen Inc. is a provider of investment banking, equity research, sales and trading, asset management and alternative asset management services.

Cowen has a Momentum Score of A and a four-quarter earnings surprise of 27.1%, on average.

Laboratory Corporation of America Holdings is a provider of title insurance, specialty insurance and claims management services. FNF is one of the nation's largest title insurance companies through its title insurance underwriters.

Laboratory Corporation of America has a Momentum Score of A. The trailing four-quarter earnings surprise is 25.7%, on average.   

Bath & Body Works, Inc. is specialty retailer of body care, home fragrance products, soaps, and sanitizers. Bath & Body Works sells its products under the Bath & Body Works, White Barn, C.O. Bigelow, and other brand names online as well as through retail stores.

BBWI has a Momentum Score of A and a trailing four-quarter earnings surprise of 32.7%, on average.

ArcBest Corporation is a provider of freight transportation services and solutions. The company offers transportation of general commodities, motor carrier freight transportation services, business-to-business air transportation services, ocean transport services as well as expedited freight transportation services to commercial and government customers.

ArcBest has a Momentum Score of A. The trailing four-quarter earnings surprise is 27.4%, on average.

You can get the rest of the stocks on this list 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 test 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.


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


Labcorp (LH) - $25 value - yours FREE >>

ArcBest Corporation (ARCB) - $25 value - yours FREE >>

Bath & Body Works, Inc. (BBWI) - $25 value - yours FREE >>

Published in