As July begins, investors can enhance returns by taking a more active approach to stock selection, identifying potential breakout opportunities within well-defined price ranges. Under this strategy, a stock should be sold if it falls below the lower band. In contrast, a move above the upper band signals a potential breakout and an opportunity to stay invested to capture continued upside momentum. 

Using this framework, First Advantage Corporation (FA Quick QuoteFA - Free Report) , Bioventus Inc. (BVS Quick QuoteBVS - Free Report) and Ooma, Inc. (OOMA Quick QuoteOOMA - Free Report) stand out as potential breakout stocks in July. 

Identifying Breakout Stocks for Maximum Returns 

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 resistance. 

Has the Stock Confirmed a Genuine Breakout? 

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. 

Research Wizard 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.)

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 24. 

Here are the top three stocks:

First Advantage  

First Advantage offers global employment background screening, digital identity, and verification services to businesses around the world. First Advantage has a Zacks Rank #2. FA’s expected earnings growth rate for the current year is 18.3%. 

Bioventus  

Bioventus develops medical devices for pain relief and musculoskeletal care worldwide. Bioventus has a Zacks Rank #2. Bioventus’ expected earnings growth rate for the current year is 14.7%. 

Ooma 

Ooma provides communication solutions for businesses and consumers across North America. Ooma has a Zacks Rank #2. OOMA’s expected earnings growth rate for the current year is 24%.