3 Best Momentum Stocks to Invest in Using the Driehaus Strategy

The Driehaus strategy can be used to choose the most dynamic stocks with the theory “buy high and sell higher”. Undoubtedly, it was a successful investment strategy that helped Richard Driehaus earn a spot on Barron’s All-Century team.

To this end, actions like FirstSource Builders BLDR, National Fuel Gas Company NFG and EOG Resources EOG was selected as the momentum pick for the day using the Driehaus strategy.

A detailed overview of the Driehaus strategy

Regarding strategy, Driehaus once said, “I would much rather invest in a stock that is going up in price and take the risk that it starts to fall than invest in a stock that is already down and try to guess when it’s going to recover.” In line with this idea, the American Association of Individual Investors (AAII) considered the 50-day percentage moving average as one of the key criteria before creating a portfolio according to Driehaus’ philosophy.

It is calculated by dividing the numerator (month-end price minus the 50-day moving average of the 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 50-day moving average percentage indicates that the stock is trading at a price above its 50-day moving average level, indicating an upward trend.

Additionally, AAII found that Driehaus is primarily focused on strong earnings growth rates and impressive earnings projections to pick potential outperformers. Companies with a solid history of exceeding estimates are also given importance in this strategy, which has been designed to provide better long-term returns.

Screening Parameters

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

Zacks Rank equal to No. 1

Whether the market is good or bad, stocks with a Zacks #1 rank have a proven history of outperformance. You can see the full list of today’s Zacks #1 Rank stocks here.

Average EPS growth rate over the last 5 years above 2%

Strong EPS growth track record warrants business improvement

12-month EPS growth greater than 0 and industry median

Higher EPS growth relative to industry average indicates superior earnings performance

Four-quarter average EPS surprise above 5%

Strong EPS Surprise History Indicates Better Price Performance

Positive percent change in 50-day moving average and 4-week relative strength

Positive percent change from the 50-day moving average and rising relative strength signal trend

Momentum Score equal to or less than B

A favorable momentum score indicates that it is ideal for taking advantage of momentum with the greatest probability of success.

These few parameters reduced the universe from more than 7,743 stocks to only 23.

Here are three of the 23 actions:

Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional home builders, contractors, remodelers and consumers. Builders FirstSource has a Momentum Score of B. The past four quarter earnings surprise for BLDR is nearly 74%, on average.

National Fuel Gas is an integrated energy company with natural gas assets located in the prolific Appalachian Basin and oil producing assets in California. National Fuel Gas has a Momentum score of B. The last four quarter earnings surprise for NFG is 12.4% on average.

EOG Resources is primarily involved in the exploration and production of oil and natural gas. EOG Resources has a Momentum score of A. The earnings surprise for the last four quarters for EOG is 7.1% on average.

You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.

The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, and see what gems come out.

Click here to sign up for a free trial of Research Assistant 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 the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.

5 shares ready to double

Each was handpicked by a Zacks expert as the #1 preferred stock to earn +100% or more in 2021. Previous recommendations have skyrocketed +143.0%, +175.9%, + 498.3% and +673.0%.

Most of the stocks in this report fly under the radar on Wall Street, which provides a great opportunity to get in on the ground floor.

Today, check out these 5 potential home runs >>

Click to get this free report

EOG Resources, Inc. (EOG): Free Stock Analysis Report

Builders FirstSource, Inc. (BLDR): Free Stock Analysis Report

National Fuel Gas Company (NFG): Free Inventory Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research

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

Comments are closed.