Investors seeking to maximize returns in October may benefit from considering high-momentum stocks. To identify stocks with strong upside potential, investors can adopt Richard Driehaus’s “buy high and sell higher” strategy, a momentum-driven investment philosophy he famously championed, which helped him earn recognition on Barron’s All-Century Team. 

Following Richard Driehaus’s momentum-investing philosophy, Seagate Technology Holdings plc (STX Quick QuoteSTX - Free Report) and Valero Energy Corporation (VLO Quick QuoteVLO - Free Report) stand out as leading momentum stock picks, offering attractive entry points at current price levels. 

How the Driehaus Momentum Approach Uncovers High-Potential Stocks 

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 decline and try to guess when it will turn around.” In line with this insight, the American Association of Individual Investors (“AAII”) considered the 50-day moving average one of the key criteria when creating a portfolio aligned with Driehaus’ philosophy. 

The strategy calculates momentum 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 above its 50-day moving average, signaling an uptrend.??? 

Moreover, AAII found that Driehaus primarily focuses on strong earnings growth rates and impressive earnings projections to pick potential outperformers. Companies with a strong history of beating estimates are also prioritized in this strategy, which was designed to deliver better long-term returns.

Research Wizard’s Key Criteria for Selecting Stocks 

To make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #1 (Strong Buy) and a Momentum Score of A or B. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1, offer the best upside potential.

• Zacks Rank equal to #1

Whether the market is good or bad, stocks with a Zacks Rank #1 have a proven track record of outperformance. 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 an improving business

• Trailing 12-month EPS growth greater than 0 and industry median

Higher EPS growth compared to the industry average indicates superior earnings performance 

• Last four-quarter average EPS surprise greater than 5%

Solid EPS surprise history indicates better price performance

• Positive percentage change in 50-day moving average and relative strength over 4 weeks

Positive percentage change in the 50-day moving average and the relative strength signal an uptrend

• Momentum Score equal to or less than B 

A favorable momentum score indicates that it is ideal to capitalize on the momentum with the highest probability of success.

These few parameters have narrowed the universe of more than 7,743 stocks to only 15. 

Here are two of the 15 stocks:

Seagate Technology 

Seagate Technology provides data storage solutions across the United States, Singapore, the Netherlands and global markets. It has a Momentum Score of A. The trailing four-quarter earnings surprise for STX is 12.4%, on average. The company’s expected earnings growth rate for the current year is 135.7% (read more: Should You Buy, Hold, or Sell Seagate Stock Ahead of Q1 Earnings?) 

Valero Energy 

Valero Energy produces and sells petroleum-based and low-carbon fuels and petrochemical products across North America, Europe, Latin America and global markets. It has a Momentum Score of A. The trailing four-quarter earnings surprise for VLO is 23.9% on average. The company’s expected earnings growth rate for the current year is 411%.