Entering the fourth quarter of 2024, Wall Street maintained strong momentum, positively closing the first nine months. The S&P 500, the Dow and the Nasdaq gained 20.8%, 12.3% and 21.2%, respectively, in the first three quarters of the year, and if history is any guide, they are most likely to continue their winning streak in the fourth quarter. Most importantly, if the S&P 500 keeps gaining until December, it would be the second successive year that the index has soared over 20%, a milestone not seen since 1998, per Dow Jones Market Data.

The Federal Reserve cut interest rates by 50 basis points, and the U.S. economy added a solid 254,000 jobs last month, which has already given the stock market the required boost to climb upward. Undoubtedly, the fourth quarter may witness elevated volatility at times due to the Middle East crisis and presidential election, but broadly investors are optimistic about the outlook.

Thus, investors should capitalize on the extended market upswing despite occasional volatility by investing in sound momentum stocks and applying Richard Driehaus's investment strategy, better known as the “buy high and sell high” theory.

To that end, stocks like Corcept Therapeutics Incorporated CORT, Abercrombie & Fitch Co. ANF and HCI Group, Inc. HCI have been selected as today’s momentum picks using the Driehaus strategy.

A Detailed Look Into the Driehaus Strategy

Regarding the strategy, Driehaus once said: “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 decline and try to guess when it will turn around.” In line with this insight, the American Association of Individual Investors (“AAII”) considered the percentage 50-day moving average as one of the key criteria before creating a portfolio following Driehaus’ philosophy.

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 been included 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.

Moreover, AAII found that Driehaus primarily focuses on strong earnings growth rates and impressive earnings projections to pick potential outperformers. Companies with a strong history of beating estimates are also given importance in this strategy, which was made to provide better returns over the long term.

Screening Parameters Using Research Wizard

To make the strategy more profitable, we have considered only those 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, offer the best upside potential.

? Zacks Rank equal to 1

Whether the market is good or bad, stocks with a Zacks Rank #1 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       

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

These few parameters have narrowed the universe of over 7,743 stocks to only 10.

Here are three of the 10 stocks:

Corcept Therapeutics

Corcept Therapeutics develops drugs for severe metabolic, psychiatric, and oncology disorders. CORT has a Momentum Score of A. The trailing four-quarter earnings surprise for CORT is 24.4%, on average.

Abercrombie & Fitch

Abercrombie & Fitch sells premium casual clothing for men, women and kids. ANF has a Momentum Score of A. The trailing four-quarter earnings surprise for ANF is 28%, on average.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

HCI Group

HCI Group is involved in various business activities such as insurance, IT, real estate, and reinsurance. HCI has a Momentum Score of A. The trailing four-quarter earnings surprise for HCI is 117.7%, on average.

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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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report

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