How to Find the Best Performing Stocks

The best performing stocks don't hide. They leave footprints—relative strength, momentum, volume patterns, and fundamental excellence. The challenge isn't that winning stocks are invisible; it's knowing where and how to look.

This guide shows you proven methods for identifying market leaders, from simple price-based screens to sophisticated multi-factor approaches used by professional investors.

Why Finding Top Performers Matters

The math of market returns:

• A small percentage of stocks drive most market gains
• Studies show ~4% of stocks account for all net market wealth creation
• Missing the top performers dramatically hurts returns
• Owning losers while missing winners is the worst outcome

The persistence of performance:

• Strong stocks tend to stay strong (momentum effect)
• Market leadership rotates but persists for months
• Identifying leaders early compounds the advantage
• Relative strength predicts future outperformance

Finding the best performing stocks isn't about luck—it's about systematic screening and disciplined execution.

Method 1: Relative Strength Analysis

Relative strength is the single most powerful tool for finding top performers. It measures how a stock performs compared to the broader market.

What Relative Strength Tells You

High relative strength indicates:

• Institutional buying and accumulation
• Positive sentiment and momentum
• Likely fundamental improvement
• Leadership in its sector or theme

Low relative strength indicates:

• Institutional selling or neglect
• Negative sentiment
• Possible fundamental deterioration
• Lagging its peers

How to Calculate Relative Strength

Simple relative strength:

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RS = (Stock return over period) / (Market return over period)

Example:
Stock up 15% over 6 months
S&P 500 up 8% over 6 months
RS = 15% / 8% = 1.875 (outperforming by 87.5%)

Relative strength rank (percentile): Rank all stocks by performance and assign percentile scores (1-99). Stocks with RS rank > 80 are in the top 20% of performers.

Relative Strength Screening Strategy

The approach:

1. Calculate 6-month or 12-month relative strength for all stocks
2. Rank stocks by RS score
3. Focus on stocks with RS rank > 70 (top 30%)
4. Prefer stocks where RS is improving, not deteriorating
5. Combine with other filters (fundamentals, volume, sector)

What research shows:

• Stocks in the top RS quintile outperform the bottom quintile by 10%+ annually
• RS momentum persists for 6-12 months on average
• Combining RS with other factors improves results further

Using Stock Alarm Pro for Relative Strength

Stock Alarm Pro makes relative strength screening simple:

• Pre-calculated RS rankings for all S&P 500 stocks
• Sort by 1-week, 1-month, 3-month, YTD performance
• Visual heatmaps showing sector relative strength
• Alerts when stocks break to new relative strength highs

Method 2: Price Momentum Screening

Price momentum is closely related to relative strength but focuses on absolute returns rather than relative performance.

The Momentum Effect

Why momentum works:

• Information diffuses slowly through markets
• Investors underreact to positive news initially
• Institutional buying takes time (can't buy all at once)
• Behavioral biases cause trends to persist

Academic evidence:

• Momentum is one of the most documented market anomalies
• Works across asset classes, countries, and time periods
• 12-month momentum with 1-month skip is most robust
• Effect persists despite being well-known

Momentum Screening Criteria

Basic momentum screen:

• 12-month return > 20%
• 6-month return > 10%
• 3-month return > 5%
• 1-month return > 0% (still trending)

Enhanced momentum screen:

• 12-month return in top 20% of universe
• Positive returns over 1, 3, 6, and 12 months (consistency)
• Price above 50-day and 200-day moving average
• Making new 52-week highs or within 5%

52-Week High Strategy

Stocks at 52-week highs are often the best performers—and research shows they continue outperforming.

The screen:

1. Stock at or within 2% of 52-week high
2. 52-week high is also near all-time high (not a falling knife)
3. Volume on advance is above average
4. Stock has been trending up (not a sudden spike)

Why it works:

• New highs clear overhead resistance (no sellers from higher prices)
• Indicates institutional accumulation
• Psychological barrier removed
• Often coincides with fundamental improvement

Method 3: Fundamental Quality Screens

The best long-term performers combine price momentum with fundamental quality. Screening for both improves results.

Growth Metrics

Revenue growth:

• YoY revenue growth > 15%
• Accelerating growth (this quarter > last quarter)
• Consistent growth over multiple quarters
• Revenue beats analyst estimates

Earnings growth:

• YoY EPS growth > 20%
• Earnings acceleration
• Positive earnings surprises
• Upward estimate revisions

Growth at reasonable price (GARP):

• PEG ratio < 1.5 (P/E divided by growth rate)
• Growth justifies valuation
• Not paying excessive premium for growth

Profitability Metrics

Margins:

• Gross margin > industry average
• Operating margin expanding
• Net margin > 10% (for most industries)
• Margin improvement year-over-year

Return metrics:

• Return on Equity (ROE) > 15%
• Return on Invested Capital (ROIC) > 12%
• Return on Assets (ROA) > 8%
• Returns above cost of capital

Quality Indicators

Balance sheet strength:

• Debt/Equity < 1.0 (varies by industry)
• Current ratio > 1.5
• Positive free cash flow
• Cash flow exceeds net income

Earnings quality:

• Cash flow from operations > Net income
• Low accruals (earnings backed by cash)
• Consistent earnings (low volatility)
• Clean accounting (no red flags)

Combined Fundamental Screen

High-quality growth screen:

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Revenue growth > 15% YoY
EPS growth > 20% YoY
ROE > 15%
Debt/Equity < 0.5
Free cash flow positive
Price momentum positive (above 200-day MA)

This combination finds companies with strong fundamentals AND market recognition (price momentum confirms fundamental improvement).

Method 4: Sector and Industry Leadership

Top performers often emerge from leading sectors. Identifying sector rotation helps you find the best stocks.

Why Sector Analysis Matters

Market leadership rotates:

• Different sectors lead in different market environments
• Economic cycles favor different industries
• Sector momentum persists for quarters
• Best stocks are often sector leaders

Sector performance hierarchy:

1. Leading sectors (outperforming market)
2. Market-performing sectors
3. Lagging sectors (underperforming market)

Strategy: Focus on leading stocks within leading sectors.

Identifying Sector Leaders

Sector-level analysis:

• Compare sector ETF performance (XLK, XLF, XLE, etc.)
• Identify sectors outperforming S&P 500
• Note which sectors are accelerating vs. decelerating
• Watch for rotation (money moving between sectors)

Finding leaders within sectors:

1. Identify top 2-3 performing sectors
2. Screen stocks within those sectors
3. Rank by relative strength within sector
4. Select top performers from leading sectors

Current Sector Analysis Tools

Using Stock Alarm Pro:

• Sector heatmaps show real-time sector performance
• Compare all 11 S&P sectors at a glance
• Drill down to individual sector leaders
• Track sector rotation over multiple timeframes

Method 5: Institutional Activity Tracking

Following institutional money flow helps identify stocks being accumulated by smart money.

Signs of Institutional Accumulation

Volume patterns:

• Increasing volume on up days
• Decreasing volume on down days
• Accumulation/distribution rating improving
• Large block trades on upticks

Ownership data:

• Institutional ownership increasing
• Number of institutional holders growing
• Top funds adding positions (13F filings)
• Insider buying (Form 4 filings)

Price behavior:

• Tight consolidations (institutions absorbing supply)
• Support holding on pullbacks
• Quick recoveries from selloffs
• Relative strength during market weakness

Tracking Institutional Flows

13F filings:

• Quarterly reports of institutional holdings
• Shows what hedge funds and mutual funds own
• Delayed (45 days after quarter end)
• Useful for identifying accumulation over time

Fund flow data:

• ETF inflows/outflows by sector
• Mutual fund flow reports
• Shows where money is moving

Options market:

• Unusual call buying can signal accumulation
• Large bullish bets by institutions
• Smart money often uses options

Method 6: Technical Breakout Scanning

Technical analysis helps identify stocks ready to make their next move higher.

Breakout Characteristics

What makes a quality breakout:

• Breaking above well-defined resistance
• Volume surge on breakout (1.5x+ average)
• Price closes near high of breakout day
• Prior consolidation of adequate length (4+ weeks)

Breakout Patterns to Scan For

Cup and handle:

• U-shaped base followed by smaller pullback
• Handle should be shallow (< 15% deep)
• Breakout above handle high
• Volume expansion on breakout

Flat base:

• Tight consolidation (< 15% range)
• Duration of 4-8 weeks
• Breakout above range high
• Often follows a prior advance

High tight flag:

• Strong advance (100%+ in 4-8 weeks)
• Tight consolidation near highs (< 20% pullback)
• Breakout continues prior trend
• High-risk but high-reward pattern

Setting Up Breakout Scans

Daily breakout scan:

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Price at 52-week high (or within 2%)
Volume > 1.5x 50-day average
Price > 20-day moving average
20-day MA > 50-day MA > 200-day MA
Relative strength rank > 70

Alert-based approach: Set price alerts just above resistance levels on stocks in quality patterns. When alerts trigger, you're notified of potential breakouts.

Combining Methods: Multi-Factor Approach

The most robust approach combines multiple methods. Each method catches different aspects of stock quality.

The Multi-Factor Screen

Layer 1: Price momentum

• 6-month return in top 30%
• Price above 200-day moving average
• Within 10% of 52-week high

Layer 2: Relative strength

• RS rank > 70
• RS improving over past month
• Outperforming sector

Layer 3: Fundamental quality

• Revenue growth > 10%
• EPS growth > 15%
• ROE > 15%
• Positive free cash flow

Layer 4: Technical setup

• In uptrend (higher highs, higher lows)
• Near breakout level or recently broken out
• Volume confirming advances

Weighting and Scoring

Create a composite score combining factors:

Stocks scoring in the top 10% across all factors are the highest-quality opportunities.

Building Your Watchlist

Once you've identified top performers, build and maintain a watchlist.

Watchlist Organization

Tiered approach:

• Tier 1: Ready to buy (setup complete, waiting for entry)
• Tier 2: Developing (building patterns, need more time)
• Tier 3: On radar (strong stocks to watch for future setups)

By category:

• Sector leaders (best in each sector)
• Momentum leaders (highest RS stocks)
• Breakout candidates (patterns forming)
• Earnings plays (upcoming catalysts)

Watchlist Maintenance

Weekly tasks:

• Review all positions for changes
• Remove stocks breaking down
• Add new leaders emerging
• Update tier assignments

What triggers removal:

• Relative strength deteriorates significantly
• Breaks below key support (50-day or 200-day MA)
• Fundamental disappointment (earnings miss, guidance cut)
• Sector falls out of favor

Using Stock Alarm Pro for Watchlists

• Create multiple watchlists by strategy
• Set alerts on key price levels
• Monitor relative strength changes
• Sync across devices for mobile access

Common Mistakes When Finding Top Performers

1. Buying Laggards Hoping for Catch-Up

The mistake: Assuming weak stocks will rebound to match leaders Reality: Weak stocks often continue underperforming; there's usually a reason they're lagging Solution: Focus on strength, not weakness; buy leaders, not laggards

2. Waiting for Pullbacks That Never Come

The mistake: Refusing to buy strong stocks because they "look expensive" Reality: The best performers often don't pull back much; strength begets strength Solution: Buy strength on minor pullbacks or breakouts; don't wait for deep discounts

3. Selling Winners Too Early

The mistake: Taking profits on best performers while holding losers Reality: Your winners should be your largest positions; let them run Solution: Use trailing stops; add to winners; cut losers quickly

4. Ignoring Sector Context

The mistake: Buying strong stocks in weak sectors Reality: Sector headwinds can overwhelm individual stock strength Solution: Prefer leaders in leading sectors; be cautious with strength in weak sectors

5. Chasing After Big Moves

The mistake: Buying after 50%+ moves with no pullback Reality: Extended stocks often consolidate or correct Solution: Wait for constructive patterns; buy early or on pullbacks

6. Over-Screening

The mistake: Using so many criteria that no stocks qualify Reality: Perfect stocks don't exist; good-enough is often excellent Solution: Prioritize 3-5 key factors; don't require perfection

Tools and Resources

Free Resources

Professional Tools

Data Sources

• Company filings (SEC EDGAR)
• Institutional holdings (13F filings)
• Insider transactions (Form 4)
• Analyst estimates (various providers)
• Economic data (FRED)

Creating a Systematic Process

Weekly Screening Routine

Sunday evening (30-60 minutes):

1. Market review

   • How did the market perform?
   • Which sectors led/lagged?
   • Any major rotations?

2. Run screens

   • Relative strength leaders
   • New 52-week highs
   • Breakout candidates
   • Fundamental quality + momentum

3. Update watchlist

   • Add new leaders
   • Remove broken stocks
   • Prioritize setups

4. Set alerts

   • Key breakout levels
   • Support levels for stops
   • Earnings dates

5. Plan the week

   • Which stocks are actionable?
   • What would trigger a buy?
   • What's the risk management plan?

Monthly Review

• Which screens are producing winners?
• What's the hit rate on different methods?
• Any adjustments needed to criteria?
• What did you learn this month?

Conclusion

Finding the best performing stocks is a skill that improves with practice and systematic application. The methods in this guide—relative strength, momentum, fundamentals, sector analysis, and technical setups—each offer valid approaches that can be combined for even better results.

Key takeaways:

1. Relative strength is king - Strong stocks tend to stay strong; focus on leaders
2. Momentum persists - Don't fight the trend; ride it until it ends
3. Quality matters - Fundamental strength supports sustainable performance
4. Sectors rotate - Find leaders within leading sectors
5. Combine methods - Multi-factor approaches are most robust
6. Be systematic - Regular screening beats random stock picking
7. Use tools - Screeners and alerts help you find and act on opportunities

The best performers leave clues. Your job is to develop the screens and routines that catch them—ideally before they become obvious to everyone else.

Related Articles

• Relative Strength Complete Guide
• Momentum Trading Strategies
• How to Pick Stocks
• Short-Term Stock Picking
• Sector Rotation Strategies
• Breakout Trading Guide
• Best Stock Screeners