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Buy These 4 Breakout Stocks to Get Explosive Returns

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Picking breakout stocks is one of the most favored methods for those utilizing an active investing approach since this strategy offers the promise of superlative returns. This method involves zeroing in on those stocks whose prices are varying within a narrow band.

If the price of the stock falls below this channel, it could be the best time to sell it off. 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.

To that end, Photronics, Inc. (PLAB - Free Report) , MGIC Investment Corporation (MTG - Free Report) , Sensus Healthcare, Inc. (SRTS - Free Report) , and Wipro Limited (WIT - Free Report) have been selected as the breakout stocks for today.

Zeroing in on Breakout Stocks

In order to select the right breakout stock, one has to first calculate its support and resistance level. 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 that 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 portfolio. 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.

Has a Breakout Really Occurred?

The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is at all genuine is another matter altogether.

For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price which may not seem attractive at first glance.

Screening Parameters

• Percentage price change over four weeks between 10% and 20% (Stocks showing considerable price increases, but whose gains are not excessive.)

• Current Price /52-Week High greater than or equal to 0.9 (Stocks 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.)

No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

• Beta for 60 months less than or equal to 2           

(Stocks that 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 more than 7,706 stocks to only 19.

Here are four of the 19 stocks that passed the screen:

Photronics, Inc. is a manufacturer and seller of photomask products and services across the world.

Photronics currently carries a Zacks Rank #1. PLAB has an expected earnings growth rate of 46.1% for the current year.

MGIC Investment Corporation is a provider of private mortgage insurance, mortgage credit risk management solutions as well as ancillary services in the United States, Puerto Rico, and Guam.

Currently, MGIC Investment carries a Zacks Rank #1. MTG has an expected earnings growth rate of 17.6% for the current year.

Sensus Healthcare, Inc. is a medical device company that specializes in the treatment of non-melanoma skin cancers and other skin conditions, such as keloids, with superficial radiation therapy.

Currently, Sensus Healthcarecarries a Zacks Rank #1. SRTS has an expected earnings growth rate of more than 100% for the current year.

Wipro Limited is a provider of comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally.

Wipro currently carries a Zacks Rank #2. WIThas an expected earnings growth rate of 12.5% for the current year.

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 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.