Investors can potentially boost returns by taking a more active approach to stock selection, tracking potential breakout opportunities within well-defined price ranges. In this strategy, a stock should typically be sold if it falls below the lower boundary of the range, while a move above the upper boundary signals a breakout and an opportunity to stay invested for further upside gains.

Applying this strategy, Arko Corp. (ARKO Quick QuoteARKO - Free Report) , Super Group (SGHC Quick QuoteSGHC - Free Report) Limited (SGHC Quick QuoteSGHC - Free Report) and Luxfer Holdings PLC (LXFR Quick QuoteLXFR - Free Report) emerged as notable breakout candidates. Over the past year, shares of Arko, Super Group and Luxfer have jumped 31.2%, 50.9% and 28.5%, respectively.

Spotting Breakout Stocks Before the Next Big Move

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 highly prized by traders. However, whether such a breakout is genuine is another matter altogether. 

For a bona fide breakout, the stock’s earlier resistance should become its new support. 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 15. 

Here are the top three stocks: 

Arko 

Arko runs a network of convenience stores across the United States. Arko has a Zacks Rank #1. ARKO’s expected earnings growth rate for the current year is 73.3%.

Super Group

Super Group is an online operator specializing in sports betting and gaming services. Super Group has a Zacks Rank #2. SGHC’s expected earnings growth rate for the current year is 42.9%.

Luxfer

Luxfer manufactures high-performance materials, components, and gas containment solutions. Luxfer has a Zacks Rank #2. LXFR’s expected earnings growth rate for the current year is 8.1%.