Explore These 4 Momentum Stocks Using Driehaus Strategy
BOOT, GMS, FNF, and ARCB qualified as the momentum picks for the day, using the Driehaus strategy.
Investors with the propensity to take higher risks can think of investing in momentum stocks to boost their gains. In this respect, the Driehaus strategy can be used to choose the best momentum stocks with the “buy high and sell higher" theory. Eventually, Richard Herman Driehaus earned his place in Barron’s All-Century Team, following the success of this investment strategy.
Portfolios such as the American Association of Individual Investors (AAII) have proven time and again that the strategy has the potential to offer high returns. Thus, investors with a high-risk appetite may opt for this strategy.
A Detailed Look Into 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, AAII took into account 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.
In order 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 or 2 (Buy), 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 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 to take advantage of the momentum with the highest probability of success.
These few parameters have narrowed down the universe of over 7,743 stocks to only 37.
Here are four of the 37 stocks:
Boot BarnHoldings, Inc. is the owner and operator of specialty retail stores in the United States devoted to western and work-related footwear, apparel and accessories.
Boot Barn has a Momentum Score of A and a four-quarter earnings surprise of 35.3%, on average.
Fidelity National Financial, Inc. is a provider of title insurance, specialty insurance and claims management services. FNF is one of the nation's largest title insurance companies through its title insurance underwriters.
Fidelity National Financial has a Momentum Score of B. The trailing four-quarter earnings surprise is 38.2%, on average.
GMS Inc. distributor of wallboard and suspended ceilings systems. GMS also provides complementary interior construction products used in commercial and residential buildings.
GMS has a Momentum Score of A and a trailing four-quarter earnings surprise of 24.5%, on average.
ArcBestCorporation is a provider of freight transportation services and solutions. The company offers transportation of general commodities, motor carrier freight transportation services, business-to-business air transportation, and ocean transportion services as well as expedited freight transportation services to commercial and government customers.
ArcBest has a Momentum Score of B. The trailing four-quarter earnings surprise is 27.4%, 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.
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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Boot Barn Holdings, Inc. (BOOT): Free Stock Analysis Report
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GMS Inc. (GMS): Free Stock Analysis Report
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