These 2 Breakout Stocks are Strong “Buys”

When it comes to finding good trades, it’s best to start by finding stocks displaying outstanding price momentum. William J. O’Neil, founder of Investor’s Business Daily, and one of the best investors out there, once told me that cheap stocks are cheap for a reason, and that if I wanted to make real money in the market I should look for stocks displaying strong price momentum, and that have a track record of strong earnings. Often, these were stocks already breaking out to new 52-week highs.

So my radar always lights up when I see stocks breaking out, and two stocks that are currently spiking higher on strong momentum are Cheesecake Factory (NASDAQ: CAKE) and Anheuser-Busch InBev (NYSE: BUD).

Cheesecake Factory

If you’ve ever dined at a Cheesecake Factory, then you know the restaurant chain offers customers huge portions of delicious food and desserts at a relatively reasonable cost. This tasty combination helped the company see a 15% increase in second-quarter earnings, with gains coming from improved sales in many of its 173 restaurants across the country.

Net income during the April-through-June period came in at $28.4 million, or 52 cents per share, up from $24.7 million, or 42 cents per share, in the same quarter a year ago. Analysts were only expecting EPS of 49 cents. Revenue also beat expectations, coming in at $454.7 million, a 6% increase over the prior year. Traders certainly liked the Q2 dish served up by Cheesecake Factory, as shares spiked nearly 9% in July 26 trade, one day after the company reported results.

CAKE shares now are trading at a new 52-week high, and the stock surged above the 50-day moving average on news of the earnings beat. As you can see by the chart above, since October 2011, every time the stock broke above its 50-day average it was followed by a sizeable surge. I suspect the stock can climb as high as $38 in the weeks to come, which represents about a 15% gain over current levels.

Recommended Trade Setup:

– Buy CAKE at market price
– Set stop-loss at $30.40
– Set initial price target at $38

Anheuser-Busch InBev

The iconic beer and beverage giant is the maker of the über-popular Budweiser and Bud Light brands, but its reach doesn’t stop there. Last month, the company announced a deal to acquire the remaining 50% stake in Mexico’s Grupo Modelo that it didn’t already own for the hefty sum of $20.1 billion. Modelo’s brands include Corona and Pacifico beers.

News of the deal caused BUD shares to surge to what was then an all-time high at the end of June of just under $80. In the weeks that followed, the stock saw some consolidation in the $76.60 to $79.60 range, but over the past several trading days, shares have spiked above $81 to yet another new all-time high.

The latest breakout in BUD shares can be seen in the above chart. At current levels, there is a danger that the stock is a bit overextended from both the 50-day and 200-day moving averages. However, sales growth metrics in the beer space are improving, and the industry continues to see steady growth. Anheuser-Busch InBev has seen its profit grow 60% and 44% over the past two quarters, respectively, and more of the same surging EPS growth is likely to keep BUD shares buzzing for a little while longer. I like this beer stock for a 10% pop over the next couple of months.

Recommended Trade Setup:

– Buy BUD at market price
– Set stop-loss at $74.50
– Set initial price target at $89
– Jim WoodsSource: TradingAuthority

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