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Use Driehaus Strategy and Invest in These Momentum Stocks
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Momentum strategies generally follow a "buy high and sell higher" principle. Investors with a high risk appetite seek strategies that help to provide healthy returns by investing in momentum stocks. One such strategy was devised by Richard Driehaus who was also known as the pioneer of momentum investing. The popularity of his strategy earned Driehaus a mention in the Barron’s All-Century Team.
The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. AAII’s portfolio, which was developed following the strategy, returned 13.5% and 18.1% in the five- and 10- year timeframe, respectively, compared with -1.1% and 4.2% returns registered by the S&P 500. Thus, investors with a high risk appetite may opt for this strategy to boost their portfolio returns.
A Detailed Look into 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 line with this insight, AAII took into account the percentage 50-day moving average as one of the key criteria before creating a portfolio following Driehaus’ philosophy.
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 in this strategy. 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) or 2 (Buy) and a momentum score of ‘A’ or ‘B’. Our research shows that stocks with a Style Scoreof ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.
(Strong EPS growth history ensures improving business.)
• Trailing 12 month EPS growth higher than 0 and industry median
(Higher EPS growth compared to the industry average indicates superior stocks.)
• Last four-quarter average EPS surprise greater than 5%
(Positive EPS surprise indicates potential.)
• Positive % 50-day moving average and relative strength over 4 weeks
(High % 50-day moving average and relative strength signal uptrend.)
• Momentum Score equal to or less than B
(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 7,700 stocks to only 14.
Here are five of the 15 stocks:
Tech Data Corporation is a leading provider of internet technology products. Tech Data has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 8.7%.
ServisFirst Bancshares, Inc. (SFBS - Free Report) is a bank holding company. ServisFirst Bancshares has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 7.2%.
Nucor Corporation (NUE - Free Report) manufactures and sells steel products both in domestic and global markets. Nucor has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 7.7%.
KMG Chemicals, Inc. manufactures, markets and distributes specialty chemicals globally. KMG Chemicals has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 10.6%.
Ormat Technologies, Inc. (ORA - Free Report) involves in recovered energy power and geothermal business. Ormat Technologies has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 33%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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.
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.
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 »
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Use Driehaus Strategy and Invest in These Momentum Stocks
Momentum strategies generally follow a "buy high and sell higher" principle. Investors with a high risk appetite seek strategies that help to provide healthy returns by investing in momentum stocks. One such strategy was devised by Richard Driehaus who was also known as the pioneer of momentum investing. The popularity of his strategy earned Driehaus a mention in the Barron’s All-Century Team.
The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. AAII’s portfolio, which was developed following the strategy, returned 13.5% and 18.1% in the five- and 10- year timeframe, respectively, compared with -1.1% and 4.2% returns registered by the S&P 500. Thus, investors with a high risk appetite may opt for this strategy to boost their portfolio returns.
A Detailed Look into 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 line with this insight, AAII took into account the percentage 50-day moving average as one of the key criteria before creating a portfolio following Driehaus’ philosophy.
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 in this strategy. 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) or 2 (Buy) and a momentum score of ‘A’ or ‘B’. Our research shows that stocks with a Style Scoreof ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 offer the best upside potential.
• Zacks Rank equal to #1
(Only Strong Buy rated stocks can get through. 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 higher than 0 and industry median
(Higher EPS growth compared to the industry average indicates superior stocks.)
• Last four-quarter average EPS surprise greater than 5%
(Positive EPS surprise indicates potential.)
• Positive % 50-day moving average and relative strength over 4 weeks
(High % 50-day moving average and relative strength signal uptrend.)
• Momentum Score equal to or less than B
(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 7,700 stocks to only 14.
Here are five of the 15 stocks:
Tech Data Corporation is a leading provider of internet technology products. Tech Data has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 8.7%.
ServisFirst Bancshares, Inc. (SFBS - Free Report) is a bank holding company. ServisFirst Bancshares has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 7.2%.
Nucor Corporation (NUE - Free Report) manufactures and sells steel products both in domestic and global markets. Nucor has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 7.7%.
KMG Chemicals, Inc. manufactures, markets and distributes specialty chemicals globally. KMG Chemicals has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 10.6%.
Ormat Technologies, Inc. (ORA - Free Report) involves in recovered energy power and geothermal business. Ormat Technologies has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 33%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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 »