Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

5 Reasonably Priced Breakout Stocks

Picking breakout stocks is probably one of the basic techniques that active investors use. The logic to this kind of stock selection is to determine which stocks are trading within a narrow channel. Such stocks are to be purchased as soon as they move above this band and are sold when they fall below. In case a stock moves above this band, it usually gains momentum.

Market watchers caution against incorrectly timing such a move. This is because of the significant risk of identifying stock movements as breakouts, which in reality are not so. At the same time, when this strategy is utilized judiciously, it yields substantive gains, which is the reason why it remains popular.

Determining Breakout Levels

The key to this strategy is calculating the support and resistance levels of a stock. The floor of the stock’s trading channel is its support level and it should be sold as soon as it threatens to fall lower. On the other hand, the resistance is its breakout level and it is poised to gain substantially if breaks the resistance level.

When a stock is close to its support level, demand is literally hitting the floor. On the other hand demand rises when it is breaching its resistance level, signaling that this is the right time to make a lucrative addition to your portfolio. The idea is to pick stocks which have just broken above their resistance barriers or are very closing to doing so.

Screening Parameters

Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)

Current Price /52-Week High greater than or equal to 0.9 (Stocks which are 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.)

Beta for 60 months less than or equal to 2
(Stocks which move by a greater degree than the broader market but within a reasonable limit.)

Current price less than or equal to $15 (Stocks which are reasonably priced.)

These criteria narrow down the universe of over 7,700 stocks to only 11.

Here are the top 5 stocks that meet these criteria:

Entercom Communications Corp. (ETM)

U.S. Auto Parts Network, Inc. (PRTS)

Pan American Silver Corp. (PAAS)

Pretium Resources Inc. (PVG)

Luxfer Holdings PLC (LXFR)

While backtesting over a two-year timeframe(Apr 18, 2014 to Apr 15, 2016), considering a four-week holding period,a portfolio following this strategy provided a total return of 35.7% compared with the S&P 500’s return of 8.6%.For investors with a reasonably high risk appetite, this strategy provides rich rewards.

You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

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: http://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 »


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
US AUTO PARTS (PRTS): Free Stock Analysis Report
 
ENTERCOM COMMUN (ETM): Free Stock Analysis Report
 
PRETIUM RES INC (PVG): Free Stock Analysis Report
 
PAN AMER SILVER (PAAS): Free Stock Analysis Report
 
LUXFER HOLDINGS (LXFR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research