As May gets underway, investors can improve returns by taking a more active role in stock selection by tracking potential breakout opportunities within established price ranges. Under this strategy, a stock should be sold if it falls below the lower band, while a move above the upper boundary indicates a breakout and an opportunity to hold and capture further upside momentum.

Using this framework, Arko Corp. (ARKO Quick QuoteARKO - Free Report) , First Reliance Bancshares, Inc. (FSRL Quick QuoteFSRL - Free Report) and Heartland Express, Inc. (HTLD Quick QuoteHTLD - Free Report) stand out as potential breakout stocks in May.

Spotlighting Breakout Stocks for Maximum Gains 

To pick a breakout stock, calculate 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 at within a considerable period. 

In other words, the demand for a stock is lowest at its support level, meaning most traders are willing to sell it. The majority of traders are willing to go long the stock at the resistance level, indicating that they would like to add it to their portfolios. The key to identifying breakout stocks is to zero in on those on the verge of a breakout or those that have just broken above the resistance level.

Has the Stock Finally Broken Out for Real? 

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 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 established trading channel 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 that may not seem attractive at first glance. 

Screening Criteria Using Research Wizard: 

• 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.) 

Regardless of whether the market is strong or weak, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven track record of outperforming the market. 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 more than the broader market but within a reasonable limit.)

• Current price less than or equal to $20 (Stocks reasonably priced)

These criteria narrow the universe of more than 6,853 stocks to only 14. 

Here are the top three stocks: 

Arko 

Arko runs a network of convenience stores across the United States. Arko has a Zacks Rank #2. ARKO’s expected earnings growth rate for the current year is 73.3%.

First Reliance Bancshares 

First Reliance Bancshares is the holding company for First Reliance Bank, providing banking services in North and South Carolina. First Reliance Bancshares has a Zacks Rank #1. FSRL’s expected earnings growth rate for the current year is 40.4%. 

Heartland Express 

Heartland Express offers short-, medium-, and long-haul truckload transportation services across the United States, Mexico and Canada. Heartland Express has a Zacks Rank #2. HTLD’s expected earnings growth rate for the current year is 72.9%.