Investors seeking exceptional returns should prioritize high-momentum stocks. To identify stocks with continued upside potential, they can adopt Richard Driehaus’s celebrated “buy high and sell higher” strategy, which secured him a place on Barron’s All-Century Team.
Based on the Driehaus momentum-investing approach, Micron Technology, Inc. MU, Seagate Technology Holdings plc STX and TD SYNNEX Corporation SNX have emerged as strong momentum stocks, offering attractive entry opportunities for investors this July. MU, STX and SNX have generated remarkable one-year gains, surging 723.1%, 500.8% and 69.4%, respectively.
Inside the Driehaus Strategy: Spotting High-Momentum Opportunities
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.
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. 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 given importance in this strategy, which was designed to provide better returns over the long term.
Research Wizard Stock Screening Criteria
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
No matter whether the market is good 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 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 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 three of the 15 stocks:
Micron Technology
Micron Technology is a global provider of memory and storage products. It has a Momentum Score of B. The trailing four-quarter earnings surprise for MU is 21.1%, on average. The company’s expected earnings growth rate for the current year is 791% (read more: Micron & 2 Profitable Stocks to Buy in July for Explosive Upside).
Seagate Technology
Seagate Technology provides data storage technology and infrastructure solutions worldwide. It has a Momentum Score of A. The trailing four-quarter earnings surprise for STX is 10.7%, on average. The company’s expected earnings growth rate for the current year is 84.3% (read more: This AI Memory Stock Soars 600% - Could Be the Next NVIDIA).
TD SYNNEX
TD SYNNEX operates as a global IT distributor and solutions aggregator. It has a Momentum Score of B. The trailing four-quarter earnings surprise for SNX is 21.7%, on average. The company’s expected earnings growth rate for the current year is 43.1%.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>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
Seagate Technology Holdings PLC (STX): Free Stock Analysis Report
Micron Technology, Inc. (MU): Free Stock Analysis Report
TD SYNNEX Corporation (SNX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).