3 Breakout Stocks Poised for Big Gains This August

Despite August being a volatile month for the stock market, U.S. stocks have begun the month strongly this year, even as day-to-day trading remained mixed. In this environment, investors should take a more active approach to stock selection, identifying companies with the potential to break out from defined trading ranges. 

Under this strategy, a stock should be sold if it falls below the lower end of its trading range, as this may signal further downside. Conversely, a move above the upper end of the range suggests strengthening momentum, a potential breakout, and an opportunity to capture additional gains. 

Using this framework, Superior Group of Companies, Inc. SGC, AMC Global Media Inc. AMCX and Custom Truck One Source, Inc. CTOS emerge as potential breakout stocks in August. 

Finding Breakout Stocks to Maximize Portfolio Returns

To pick a breakout stock, calculate support and resistance levels. A support level is the lower bound for price movement, while a resistance level is the maximum price it trades at over a considerable period.

In other words, the demand for a stock is lowest at its support level, meaning most traders are willing to sell it. The majority of traders are willing to go long the stock at the resistance level, suggesting they would like to add it to their portfolios. 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 resistance. 

Has the Stock Confirmed a Breakout?

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 established trading channel 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. 

Research Wizard 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.) 

Regardless of market strength, stocks with a Zacks Rank of #1 (Strong Buy) or 2 (Buy) have a proven track record of outperforming the market. You can see the complete list of today’s Zacks #1 Rank stocks here. 

• Beta for 60 months less than or equal to 2

(Stocks that move more than the broader market but within a reasonable limit.) 

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

These criteria narrow the universe of more than 6,853 stocks to only 12. 

Here are the top three stocks: 

Superior Group of Companies

Superior Group of Companies manufactures and sells branded uniforms, healthcare apparel, and promotional products worldwide. Superior Group of Companies has a Zacks Rank #2. SGC’s expected earnings growth rate for the current year is 32.6%.

AMC Global Media 

AMC Global Media is an entertainment company that distributes content worldwide. AMC Global Media has a Zacks Rank #1. AMCX’s expected earnings growth rate for the current year is 24.1%.

Custom Truck One Source 

Custom Truck One Source provides specialty equipment rental and sales solutions for infrastructure industries across the United States and Canada. Custom Truck One Source has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 178.6% (read more: Micron & 2 Profitable Stocks Smart Investors Are Buying in August).


 

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This article originally published on Zacks Investment Research (zacks.com).

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