Richard Driehaus has secured a spot in Barron’s All-Century Team thanks to a strategy based on the “buy high and sell higher” theory. This approach is undeniably effective for selecting top momentum stocks.
To that end, the magnificent seven stocks like Amazon.com, Inc. AMZN, Alphabet Inc. GOOGL and Meta Platforms, Inc. META 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.
To make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #3 (Hold) 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 #3, offer a solid upside potential.
• Zacks Rank Equal to #3
Whether the market is good or bad, stocks with a Zacks Rank #3 have a proven history of outperformance. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
• Last 5-year average EPS growth rates above 2%
Strong EPS growth history ensures an 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 the 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 13.
Here are three of the 13 stocks:
Amazon engages in the retail sale of consumer products, advertising and subscription services through online and physical stores in North America and internationally. Amazon has a Momentum Score of A. The trailing four-quarter earnings surprise for AMZN is 23%, on average.
Alphabet provides a range of products and platforms across multiple regions, including the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada and Latin America. Alphabet has a Momentum Score of B. The trailing four-quarter earnings surprise for GOOGL is 16%, on average.
Meta Platforms focuses on creating products that allow individuals to connect and share with friends and family using mobile devices, personal computers, virtual reality, mixed reality headsets, augmented reality and wearables globally. Meta Platforms has a Momentum Score of A. The trailing four-quarter earnings surprise for META is 20.5%, on average.
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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:
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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