4 Solid Momentum Picks Screened on Driehaus Strategy
Investors who have the tendency to take a high level of risk can choose momentum stocks. In this context, we have focused on the Driehaus strategy — based on the “buy high and sell higher" principle — to select the best momentum stocks. The success of this particular investment approach eventually helped Richard Herman Driehaus secure a place in Barron’s All-Century Team.
The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. Thus, investors with a high-risk appetite might give the Driehaus strategy a thought to boost returns.
A Look at Driehaus’ Strategy
After a detailed study of the Driehaus’ strategy, AAII concluded that it mainly focuses on strong earnings growth rates and impressive prospects to pick the potential outperformers. While this strategy was made to provide better returns over the longer haul, companies with a strong history of beating estimates were also given importance.
“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 a decline and try to guess when it will turn around,” Driehaus had said in an interview.
Screening Parameters
The percentage 50-day moving average is one of the key criteria in this strategy. A positive percentage 50-day moving average indicates that the stock is trading at a price higher than its 50-day moving average level, indicating an uptrend. It is calculated 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.
In order to make the strategy more profitable, we have only considered those stocks that have a Zacks Rank #1 (Strong Buy) as well as 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 or 2 offer the best upside potential.
• Zacks Rank equal to #1
No matter whether good market or bad, stocks with a Zacks Rank #1 have a proven history 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 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 50-day moving average and relative strength signal uptrend
• Momentum Score equal to or less than B
A favorable momentum score indicates that it is ideal to take advantage of the momentum with the highest probability of success.
These few parameters have narrowed down the universe of over 6,817 stocks to only 25.
Here are four of the 25 stocks:
Boise Cascade Company BCC is a manufacturer of wood products and distributor of building materials. It has a Momentum Score of A. The trailing four-quarter earnings surprise is 28.8%, on average.
Century Communities, Inc. CCS is engaged in the design, development, construction, marketing and sale of single-family attached and detached homes. It has a Momentum Score of A and a trailing four-quarter earnings surprise of 28.8%, on average.
Emergent BioSolutions Inc. EBS is a life sciences company that focuses on the provision of specialty products for civilian and military populations that address accidental, deliberate and naturally occurring public health threats. It has a Momentum Score of B and a trailing four-quarter earnings surprise of more than 100%, on average.
Deckers Outdoor Corporation DECK is a designer and distributor of footwear, apparel and accessories for casual lifestyle use and high-performance activities. It has a Momentum Score of A and four-quarter earnings surprise of more than 100%, on average.
You can get the rest of the stocks on this list 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 test 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.
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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: https://www.zacks.com/performance.
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Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Emergent Biosolutions Inc. (EBS) : Free Stock Analysis Report
Century Communities, Inc. (CCS) : Free Stock Analysis Report
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
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