Richard Driehaus has secured a spot on Barron’s All-Century Team through a strategy that employs the “buy high and sell higher" theory. It’s clearly a successful investment method that can be used to select top momentum stocks.
In pursuit of that goal, three of the magnificent 7 stocks, NVIDIA Corporation NVDA, Meta Platforms, Inc. META and Amazon.com, Inc. AMZN, have been chosen as momentum stocks to monitor currently, employing the Driehaus 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, 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.
Screening Parameters Using Research Wizard:
To make the strategy more profitable, we have considered only those stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy), or 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 #1, 2, or 3, offer the best upside potential.
• Zacks Rank less than or equal to #3
Whether the market is good or bad, stocks with a Zacks Rank #1, 2, or 3 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 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 the relative strength signal uptrend
• Momentum Score equal to or less than B
A favorable momentum score indicates that it is ideal for capitalizing on 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:
NVIDIA
NVIDIA, a company focused on computing infrastructure, offers solutions for graphics, computing, and networking within the United States, as well as in Singapore, Taiwan, China, Hong Kong, and other countries worldwide (read more: Can QUBT Become the Next NVIDIA, and Should You Buy the Stock?).
NVDA has a Zacks Rank 3 and a Momentum Score of A. The trailing four-quarter earnings surprise for NVDA is 3.6%, on average (read more: NVIDIA Vs. CoreWeave: Which Stock Offers Greater AI Upside?).
Meta Platforms
Meta develops products that allow people to connect and share with friends and family using mobile devices, personal computers, virtual reality and mixed reality headsets, augmented reality, and wearables globally.
META has a Zacks Rank 3 and a Momentum Score of A. The trailing four-quarter earnings surprise for META is 20.5%, on average.
Amazon
Amazon sells consumer products, offers advertising, and provides subscription services through both online and physical stores in North America and around the world.
AMZN has a Zacks Rank 3 and a Momentum Score of A. The trailing four-quarter earnings surprise for AMZN is 23%, 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Meta Platforms, Inc. (META): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
