Picking breakout stocks is one of the most well known strategies utilized by active investors. The key to picking these stocks is to select those whose price varies, but whose movement remains restricted to a narrow band. To accurately implement such a strategy, investors must pick stocks which have just broken above such a channel or are just about do so.

Losses could be in store for investors if they time their purchases incorrectly. At the same time, identifying the right breakout stocks offers the promise of significant gains to investors.  This is the primary reason for its enduring popularity.

Determining Breakout Levels Correctly

To spot breakout stocks, the investor must first determine their resistance and support levels. A resistance level is the barrier which must be broken so as to be identified as a breakout stock. Meanwhile, a support level is the floor for the stock’s movement.

At the breakout level, the demand for the stock has peaked, making it a natural choice for traders. On the other hand, when a stock hits the support floor, traders are eager to offload it. In order to spot breakout stocks, you would have to see which of these are on the brink of breaking the resistance barrier or those which have just breached this level.

Screening Parameters

• Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)

• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are 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.)

• Beta for 60 months less than or equal to 2 (Stocks which move by a greater degree than the broader market but within a reasonable limit.)

• Current price less than or equal to $15 (Stocks which are reasonably priced.)

These criteria narrowed down the universe of over 7,700 stocks to only 17.

Here are the top 5 stocks that met these criteria:

Intrawest Resorts Holdings, Inc. (SNOW - Snapshot Report) operates as a mountain resort and adventure company which delivers vacation and travel experiences to its customers. It has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 8.4%.

AXT Inc. (AXTI - Snapshot Report) is a designer, developer, manufacturer and distributor of single and compound element semiconductor substrates. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is 75%.

AU Optronics Corp. (AUO - Snapshot Report) is engaged in the research, development, production and sale of thin film transistor liquid crystal displays and other flat panel displays used in a range of applications. It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is 16.7%.

H2O Innovation Inc (HEOFF - Snapshot Report) designs and provides integrated water treatment solutions based on membrane filtration technology to municipal, energy and natural resources end-users.It has a Zacks Rank #1 and its average EPS surprise over the last four quarters is 50%.

Belmond Ltd. (BEL - Snapshot Report) owns and operates travel and hotel businesses. It has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is more than 100%