Investors generally tend to pick breakout stocks since this strategy promises superlative returns. This method involves zeroing in on those stocks whose prices vary within a narrow band.
If the stock price falls below this channel, it could be the best time to sell it off. However, the best time to buy a stock as per this strategy is when it is about to break above this trading band. Such stocks offer the prospect of impressive gains.
To that end, Assertio Holdings, Inc. ASRT, Mercer International Inc. MERC and The LGL Group, Inc. LGL have been selected as the breakout stocks for today.
Zeroing in on Breakout Stocks
In order to select the right breakout stock, one has to first calculate its support and resistance level. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades within a considerable period.
In other words, the demand for a stock is at its lowest at its support level, which means that most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, meaning they would like to add them to their portfolio. The key to identifying breakout stocks is to zero in on those on the verge of a breakout or those that have just broken above the resistance level.
Has a Genuine Breakout Occurred?
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is genuine is another matter altogether.
For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price that may not seem attractive at first glance.
• Percentage price change over four weeks between 10% and 20% (Stocks showing considerable price increases but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks 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.)
No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
• 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 $20 (Stocks reasonably priced.)
These criteria narrow down the universe of more than 6,853 stocks to only seven. Here’re the top three stocks:
Assertio is a specialty pharmaceutical company. Its portfolio consists of branded prescription neurology, inflammation and pain medications. Currently, Assertio carries a Zacks Rank #2. ASRT has an expected earnings growth rate of 1,433.33% for the current year.
Mercer International owns and operates a diverse pulp and paper business in the southern German states of Saxony and Thuringia. Currently, Mercer International carries a Zacks Rank #1. MERC has an expected earnings growth rate of 46.9% for the current year.
The LGL Group operates through its principal subsidiary M-tron Industries, Inc., which designs and manufactures customized electronic components. Currently, LGL Group carries a Zacks Rank #2. LGL has an expected earnings growth rate of 107.1% for the current year.
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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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LGL Group, Inc. The (LGL) : Free Stock Analysis Report
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