Richard Driehaus is recognized in Barron’s All-Century Team for his approach of "buy high and sell higher," which is a successful strategy for selecting momentum stocks.
To that end, stocks like Brinker International, Inc. EAT, AppLovin Corporation APP and Phibro Animal Health Corporation PAHC have been selected as the momentum picks for the day using the Driehaus strategy.
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 percentage 50-day moving average as one of the key criteria before creating a portfolio following 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 at a price higher than its 50-day moving average level, indicating 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 made to provide better returns over the long term.
We use that basis to determine our stock selections using Zack’s Research Wizard Tool.
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, combined with a Zacks Rank #1 or 2 (Buy), offer the best upside potential.
• Zacks Rank equal to #1
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 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 for taking advantage of the momentum with the highest probability of success.
These few parameters have narrowed the universe of more than 7,743 stocks to only 20.
Here are three of the 20 stocks:
Brinker International owns, develops, operates and franchises casual dining restaurants in the United States and globally. It has a Momentum Score of A. The trailing four-quarter earnings surprise for EAT is 24.7%, on average.
AppLovin creates a software platform to help advertisers market and monetize content globally. It has a Momentum Score of A. The trailing four-quarter earnings surprise for APP is 23.5%, on average.
Phibro Animal Health is a global company specializing in animal health and mineral nutrition. It has a Momentum Score of A. The trailing four-quarter earnings surprise for PAHC is 27.1%, 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.
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.
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Brinker International, Inc. (EAT) : Free Stock Analysis Report
AppLovin Corporation (APP) : Free Stock Analysis Report
Phibro Animal Health Corporation (PAHC) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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