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3 of the Best Breakout Stocks to Buy for Solid Returns

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Active investors always search for breakout stocks. In other words, they look for stocks whose prices are fluctuating within a specific band. It’s prudent to offload the stock if it falls below the lower bound of this band. Similarly, once the stock breaks above this channel, it has all the chance of delivering strong gains.

Spotting Breakout Stocks

The first step to selecting the right breakout stocks is to calculate their support and resistance levels. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades over a considerable period.

In other words, the 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, meaning they would like to add them to their portfolio. The key to identifying breakout stocks is to pin down those on the verge of a breakout or those that have just broken above the resistance level.

Stocks that have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is whether they attain higher prices and the old barrier becomes 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 Criteria

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 that are reasonably priced.)

These criteria narrow down the universe of more than 7,706 stocks to only eight. Here’re the top three stocks:

Playa Hotels & Resorts (PLYA - Free Report) is an owner, operator and developer of resorts primarily in Mexico and the Caribbean. Playa Hotels & Resorts currently carries a Zacks Rank #2. PLYA has an expected earnings growth rate of 166.7% for the current year.

Hudson Technologies (HDSN - Free Report) is a leading provider of innovative solutions to recurring problems within the refrigeration industry. Hudson Technologies currently carries a Zacks Rank #1. HDSN has an expected earnings growth rate of 100% for the current year.

Solaris Oilfield Infrastructure (SOI - Free Report) manufactures and provides patented mobile proppant management systems which unload, store and deliver proppant at oil and natural gas well sites. Solaris Oilfield Infrastructure currently carries a Zacks Rank #1. SOI has an expected earnings growth rate of 1,166.67% for the current year.

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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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