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4 Momentum Picks Screened on Driehaus Strategy

Nitish Marwah

Richard Herman Driehaus used the "buy high and sell higher" rule to create an investment approach, which appeals to those having a high level of risk appetite. Investors principally invest in momentum stocks using the Driehaus strategy. The success of this investment approach eventually helped Richard Driehaus make a place in Barron’s All-Century Team.

The American Association of Individual Investors (AAII) proved that the strategy has the potential to offer higher-than-market returns. AAII’s portfolio, which was developed based on the Driehaus strategy, has returned more than 300% since the end of the last bear market compared with 85.5% gains registered by the S&P 500.

A Look at Driehaus’ Strategy

After a detailed study of the 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.

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“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

In addition to the 50-day moving average and relative strength, we have considered a few some parameters for picking the best stocks. As companies with a strong history of beating estimates usually outperform the market, we added this to our screen. Also, we have considered only those stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and 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

No matter whether good market or bad, stocks with a Zacks Rank #1 (Strong Buy) 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 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 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 have narrowed down the universe of over 6,847 stocks to only 13.

Here are four of the 13 stocks:

Amedisys, Inc. AMED is an independent home health, hospice and personal care company. It has a Momentum Score of B and an average four-quarter positive earnings surprise of 21.1%.

PC Connection, Inc. CNXN is a technology solutions provider of a full range of information technology solutions. It has a Momentum Score of A and an average four-quarter positive earnings surprise of 28.4%.

NRG Energy, Inc. NRG is the owner and operator of an energy company. It has a Momentum Score of A and an average four-quarter positive earnings surprise of 12.6%.

Target Corporation TGT is a retailer of general merchandise. It has a Momentum Score of A and an average four-quarter positive earnings surprise of 8.6%.

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.


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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
 
Amedisys, Inc. (AMED) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
PC Connection, Inc. (CNXN) : Free Stock Analysis Report
 
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