Active investors should pick breakout stocks for superlative returns. This method involves zeroing in on stocks whose prices vary within a narrow band.

If the stock price falls below this channel, it could be the best time to sell it off. However, the best time to buy a stock per this strategy is when it is about to break above this trading band. Such stocks offer the prospect of impressive gains.

To that end, Lifeway Foods LWAY, Augmedix AUGX and Clearwater Analytics Holdings CWAN have been selected as the breakout stocks for today.

Zeroing in on Breakout Stocks

To select the right breakout stock, one has first to calculate its support and resistance level. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades 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 them 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.

Has a Genuine Breakout Occurred?

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.

Screening Criteria

• 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.

• Beta for 60 months less than or equal to 2

(Stocks that move by a greater degree than the broader market but within a reasonable limit.)

• Current price less than or equal to $20 (Stocks reasonably priced.)

These criteria narrow down the universe of more than 6,853 stocks to only 11. Here are the top three stocks:

Lifeway Foods produces Kefir, a drinkable product similar to, but distinct from yogurt, in several flavors sold under the name Lifeway’s Kefir. Lifeway Foods currently carries a Zacks Rank #1. LWAY has an expected earnings growth rate of 900% for the current year.

Augmedix is a provider of remote medical documentation and live clinical support. Augmedix currently carries a Zacks Rank #2. AUGX has an expected earnings growth rate of 22.6% for the current year.

Clearwater Analytics Holdings is a provider of SaaS-based investment accounting, reporting and analytics solutions. Clearwater Analytics currently carries a Zacks Rank #2. CWAN has an expected earnings growth rate of 34.8% for the current year.
Lifeway Foods, Inc. (LWAY): Free Stock Analysis Report

Augmedix, Inc. (AUGX): Free Stock Analysis Report

Clearwater Analytics Holdings, Inc. (CWAN): Free Stock Analysis Report

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