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Strategies focusing on robust returns through investment in momentum stocks grab the attention of investors with a high risk appetite. Among others, Richard Driehaus is a prominent name who developed a fruitful momentum strategy banking on the "buy high and sell higher" principle. Following his success, Barron honored Driehaus by including his name in its All-Century Team.
The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. AAII’s portfolio, which was developed following the strategy, returned 13.5% and 18.1% in the five- and 10- year timeframe, respectively, compared with -1.1% and 4.2% returns registered by the S&P 500. Thus, investors with high risk appetite may opt for this strategy to boost their portfolio returns.
A Look at Driehaus’ Strategy
After a detailed study of Driehaus’ strategy, AAII concluded that it mainly focuses on strong earnings growth rates and impressive prospects of delivering the same in the future in order to pick potential companies. While this strategy was made to provide better returns over longer time frames, companies with a strong history of beating estimates were also given importance in this strategy.
“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 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.
• Last 5-year average EPS growth rates above 2% (Strong EPS growth history ensures improving business.)
• Trailing 12 month EPS growth higher than 0 and industry median (Higher EPS growth compared to the industry average indicates superior stocks.)
• Last four-quarter average EPS surprise greater than 5% (Positive EPS surprise indicates potential.)
• Positive % 50-day moving average and relative strength over 4 weeks (High % 50-day moving average and relative strength signal uptrend.)
• Momentum Score equal to or less than B (Favorable momentum score indicates that it is ideal to take advantage of the momentum with the highest probability of success.)
These few parameters narrowed down the universe of over 7,700 stocks to only 20.
Here are five of the 20 stocks:
Simpson Manufacturing Co., Inc. (SSD - Free Report) designs, engineers and manufactures wood-to-wood, wood-to-concrete and wood-to-masonry connectors. Simpson Manufacturing has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 18.8%.
Broadcom Limited (AVGO - Free Report) is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. Broadcom has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 6.4%.
Morgan Stanley (MS - Free Report) is a preeminent global financial services firm. Morgan Stanley has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 23.1%.
Chimera Investment Corporation (CIM - Free Report) operates as a real estate investment trust in the U.S. Chimera Investment has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 5.8%.
Finisar Corporation is a provider of fiber optic subsystems and network test and monitoring systems. Finisar has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 36%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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.
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.
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 »
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Screen Stocks the Driehaus Way: 5 Momentum Picks
Strategies focusing on robust returns through investment in momentum stocks grab the attention of investors with a high risk appetite. Among others, Richard Driehaus is a prominent name who developed a fruitful momentum strategy banking on the "buy high and sell higher" principle. Following his success, Barron honored Driehaus by including his name in its All-Century Team.
The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. AAII’s portfolio, which was developed following the strategy, returned 13.5% and 18.1% in the five- and 10- year timeframe, respectively, compared with -1.1% and 4.2% returns registered by the S&P 500. Thus, investors with high risk appetite may opt for this strategy to boost their portfolio returns.
A Look at Driehaus’ Strategy
After a detailed study of Driehaus’ strategy, AAII concluded that it mainly focuses on strong earnings growth rates and impressive prospects of delivering the same in the future in order to pick potential companies. While this strategy was made to provide better returns over longer time frames, companies with a strong history of beating estimates were also given importance in this strategy.
“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 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
(Only Strong Buy rated stocks can get through. 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 higher than 0 and industry median
(Higher EPS growth compared to the industry average indicates superior stocks.)
• Last four-quarter average EPS surprise greater than 5%
(Positive EPS surprise indicates potential.)
• Positive % 50-day moving average and relative strength over 4 weeks
(High % 50-day moving average and relative strength signal uptrend.)
• Momentum Score equal to or less than B
(Favorable momentum score indicates that it is ideal to take advantage of the momentum with the highest probability of success.)
These few parameters narrowed down the universe of over 7,700 stocks to only 20.
Here are five of the 20 stocks:
Simpson Manufacturing Co., Inc. (SSD - Free Report) designs, engineers and manufactures wood-to-wood, wood-to-concrete and wood-to-masonry connectors. Simpson Manufacturing has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 18.8%.
Broadcom Limited (AVGO - Free Report) is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. Broadcom has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 6.4%.
Morgan Stanley (MS - Free Report) is a preeminent global financial services firm. Morgan Stanley has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 23.1%.
Chimera Investment Corporation (CIM - Free Report) operates as a real estate investment trust in the U.S. Chimera Investment has a Momentum Score of ‘B’ and an average four-quarter positive earnings surprise of 5.8%.
Finisar Corporation is a provider of fiber optic subsystems and network test and monitoring systems. Finisar has a Momentum Score of ‘A’ and an average four-quarter positive earnings surprise of 36%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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: https://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 »