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5 Momentum Stocks to Scoop Up Gains Using Driehaus Strategy

Risk-taking investors always look for strategies that lead to attractive returns from momentum stocks. Here, we have used Driehaus strategy based on the "buy high and sell higher" principle that helped the genius earn a place in Barron's All-Century Team.

Portfolios such as that of The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer high returns. AAII's portfolio, which was developed following the strategy, returned 13.5% and 18.1% in the five- and 10- year timeframe, respectively, compared with -1.1% and 4.2% gains for the S&P 500. Thus, investors with a high risk appetite may opt for this strategy.

A Look at Driehaus' Strategy

After a detailed study of Driehaus' strategy, AAII concluded that it mainly focuses on strong earnings growth rates and impressive prospects to pick potential outperformers. While this strategy was made to provide better returns over the longer haul, companies with a strong history of beating estimates were also given importance.

"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 a decline and try to guess when it will turn around," Driehaus had said in an interview.

Screening Parameters

The percentage 50-day moving average is one of the key criteria 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. 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.

In order to make the strategy more profitable, we have only considered those stocks that have a Zacks Rank #1 (Strong Buy) as well as 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 offer the best upside potential.

• Zacks Rank equal to #1

(Only Strong Buy rated stocks can get through. 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 higher than 0 and industry median

(Higher EPS growth compared to the industry average indicates superior stocks.)

Last four-quarter average EPS surprise greater than 5%

(Positive EPS surprise indicates potential.)

Positive % 50-day moving average and relative strength over 4 weeks

(High % 50-day moving average and relative strength signal uptrend.)

Momentum Score equal to or less than B

(Favorable momentum score indicates that it is ideal to take advantage of the momentum with the highest probability of success.)

These few parameters narrowed down the universe of over 7,887 stocks to only 20.

Here are five of the 20 stocks:

Gray Television, Inc.GTN is a television broadcast company. The company has a Momentum Score of 'B' and an average four-quarter positive earnings surprise of 22%.

H&R Block, Inc.HRB is a tax preparation services provider. The company has a Momentum Score of 'B' and an average four-quarter positive earnings surprise of 9%.

Align Technology, Inc.ALGN manufactures and markets the Invisalign System, a proprietary method for treating malocclusion.The company has a Momentum Score of 'A' and an average four-quarter positive earnings surprise of 19.9%.

Raymond James Financial, Inc.RJF IS a financial holding company. The company has a Momentum Score of 'A' and an average four-quarter positive earnings surprise of 14.4%.

KLA-Tencor CorporationKLAC is a manufacturer and marketer of process control and yield management solutions. The company has a Momentum Score of 'A' and an average four-quarter positive earnings surprise of 11.6%.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.

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.

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Gray Television, Inc. (GTN): Free Stock Analysis Report

Raymond James Financial, Inc. (RJF): Free Stock Analysis Report

Align Technology, Inc. (ALGN): Free Stock Analysis Report

KLA-Tencor Corporation (KLAC): Free Stock Analysis Report

H&R Block, Inc. (HRB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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