Looking for breakout stocks in a set price range is an active investing approach. When choosing breakout stocks, sell if the price drops below the lower band and hold for gains if it surpasses the upper band.
To that end, DRDGOLD Limited DRD, NatWest Group plc NWG and Orla Mining Ltd. ORLA have been selected as the breakout stocks for today.
To pick a breakout stock, calculate support and resistance levels. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades at 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. Most traders are willing to go long on the stock at the resistance level, meaning they would like to add it 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.
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 that move more than the broader market but within a reasonable limit.)
• Current price less than or equal to $20 (Stocks reasonably priced)
These criteria narrow the universe of more than 6,853 stocks to only 12. Here are the top three stocks:
DRDGOLD Limited is a gold mining company. DRDGOLD Limited has an expected earnings growth rate of 29.3% for the current year. DRD currently has a Zacks Rank #1.
NatWest Group provides banking and financial products and services. NatWest Group has an expected earnings growth rate of 6.8% for the current year. NWG currently has a Zacks Rank #1.
Orla Mining acquires, explores, develops and exploits mineral properties. Orla Mining has an expected earnings growth rate of 60% for the current year. ORLA currently has a Zacks Rank #2.
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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DRDGOLD Limited (DRD) : Free Stock Analysis Report
NatWest Group plc (NWG) : Free Stock Analysis Report
Orla Mining Ltd. (ORLA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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