Identifying High-Momentum Stocks Using Disciplined Screening Criteria for Superior Returns

Investors seeking exceptional portfolio performance increasingly turn to quantitative screening strategies that identify outperforming stocks before the broader market recognizes their potential. The momentum-based approach advocated by legendary investor Richard Driehaus has become a cornerstone methodology for detecting stocks positioned for significant appreciation. Through systematic application of momentum indicators and fundamental quality metrics, three standout opportunities have emerged: Palantir Technologies Inc. (PLTR), Brinker International, Inc. (EAT), and Carpenter Technology Corporation (CRS).

The Momentum Strategy: Why Less Than or Equal to Specific Thresholds Matter

The Driehaus investment philosophy operates on a counterintuitive principle. As Driehaus himself stated, “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.” This perspective challenges the traditional value-investing dogma of buying depressed assets.

The core of this approach relies on identifying stocks trading above their 50-day moving average—a technical threshold that signals positive momentum. When a stock’s current price is greater than or equal to (not less than or equal to) its 50-day average, it indicates sustained upward pressure. Conversely, screening parameters often require metrics to be less than or equal to specific benchmarks—such as limiting the universe to companies with EPS surprise rates less than or equal to certain percentiles, or selecting stocks from the top performers less than or equal to #2 Zacks Rank. This mathematical precision eliminates noise and focuses on genuine momentum drivers.

The American Association of Individual Investors (AAII) refined this framework by emphasizing two critical components: positive relative strength and 50-day moving average momentum. A positive reading indicates the stock has maintained upward trajectory over recent weeks, suggesting institutional and retail buyers remain engaged.

Zacks Rank and Momentum Score: The Dual-Filter Approach

To sharpen this strategy’s effectiveness, Zacks Investment Research applies a dual-screening methodology combining quantitative momentum signals with fundamental quality metrics. The parameters have proven remarkably selective—narrowing a universe of more than 7,743 stocks down to merely 45 candidates.

The screening criteria operate as follows:

• Zacks Rank Selection: Only stocks ranked #1 (Strong Buy) or #2 (Buy) qualify. Historically, this ranking system has demonstrated consistent outperformance regardless of broader market conditions.

• Momentum Score Qualification: Stocks must achieve a Momentum Score of A or B. Combined with a favorable Style Score, this dual metric maximizes the probability of capitalizing on existing price momentum.

• EPS Growth History: Candidates must demonstrate trailing 5-year average EPS growth exceeding 2%, ensuring the business fundamentals support the price momentum.

• Relative Performance: Trailing 12-month EPS growth must exceed both zero and the industry median, confirming that earnings expansion outpaces peer companies.

• Earnings Surprise Track Record: The most recent four-quarter average EPS surprise must exceed 5%, indicating management consistently delivers better-than-expected results—a reliable predictor of continued appreciation.

• Technical Confirmation: Positive percentage change in the 50-day moving average combined with relative strength gains over four weeks confirms the uptrend remains intact.

EPS Growth and Earnings Surprises: Fundamental Drivers

What distinguishes momentum stocks from mere speculations is the presence of underlying fundamental strength. Driehaus recognized that stocks with robust earnings growth rates and impressive forward guidance maintain their upward trajectory over extended periods. Companies with established track records of beating Wall Street estimates demonstrate superior execution, attracting professional capital flows.

This fundamental validation explains why the screening parameters have successfully identified outperformers. The criteria essentially codify the observation that strong-performing stocks typically combine positive price momentum with accelerating earnings growth. When these elements align, the combination creates a self-reinforcing dynamic where rising expectations attract additional buying pressure.

Three Momentum Leaders Across Diverse Sectors

From the refined list of 45 qualifying candidates, three stocks particularly exemplify this dual-momentum-and-fundamentals approach:

Palantir Technologies (PLTR) operates in government intelligence software, developing platforms that support counterterrorism and defense operations across the United States, United Kingdom, and international markets. Palantir carries a Zacks Rank #2 designation with a Momentum Score of B. The company’s trailing four-quarter earnings surprise averages 11.6%, demonstrating consistent ability to exceed analyst expectations. This outperformance indicates growing confidence in its commercial expansion beyond government contracts.

Brinker International (EAT) operates, develops, and franchises casual dining establishments globally, with substantial U.S. presence. The company achieved Zacks Rank #1 (Strong Buy) status alongside a Momentum Score of B. Brinker’s trailing four-quarter earnings surprise of 8.2% reflects management’s disciplined execution in a traditionally challenging restaurant sector, suggesting operational improvements are gaining market recognition.

Carpenter Technology (CRS) manufactures and distributes specialty metals across North America, Europe, Asia-Pacific, and other global regions. Carpenter earns a Zacks Rank #2 with the highest Momentum Score of A among the three. The company’s 9.2% average earnings surprise indicates that market demand for specialty materials—driven by aerospace, defense, and industrial applications—continues exceeding initial projections.

The three stocks span distinct industries (software, hospitality, manufacturing), yet each demonstrates the same pattern: positive price momentum supported by escalating earnings growth and consistent surprise beats.

Why This Strategy Works: A Decade of Outperformance

Since 2000, momentum-based stock-picking strategies employing these screening criteria have substantially outpaced broader market returns. While the S&P 500 has generated approximately 7.7% average annual gains over this period, the disciplined momentum approach has delivered average annual returns of 48.4%, 50.2%, and 56.7% across different strategy variants—a dramatic differential that reflects the power of combining momentum with fundamental quality.

The outperformance stems from identifying stocks at inflection points where accelerating earnings growth intersects with positive price momentum. By systematically screening for companies that meet these specific thresholds—from Zacks Rank less than or equal to #2 down through EPS surprise metrics—investors capture momentum before it becomes obvious to the broader market.

Palantir, Brinker International, and Carpenter Technology represent contemporary applications of this time-tested principle, each offering exposure to sectors positioned for earnings expansion and sustained momentum continuation.