Stocks near their 52-week highs make the trickiest of investment choices as they have a possibility to either scale higher or go downhill.
The odds are difficult, if not impossible, to gauge. At best, 52-week investments can be described as a touch-and-go strategy which can lead to handsome rewards but only in conjunction with a particular set of parameters.
Movement of stocks toward their 52-week high or low are closely tracked on a daily basis. The vast information on such movements is hard to interpret, even for the most seasoned of investors.
Clubbing 52-week high stocks with the correct set of parameters is all you need to turn the tide in your favor. This is where our screener comes into play, as it helps you steer clear of uncertainties and book solid profits.
A Peek into 52-Week High Stocks
Stocks near 52-week highs often instill the presumptive “adjustment and anchoring bias” in the minds of investors. This principle works on the belief that investors use the 52-week high price as a reference point and value stocks against this anchor.
Many a times, such stocks are prevented from scaling higher despite robust potential due to the psychological bias of investors who fear that the stocks are overvalued and a price crash is impending.
A few of the stocks remain undervalued due to prolonged under reaction on part of investors despite bullish growth drivers. Meanwhile, news pertaining to robust sales, surging profit levels, bullish earnings prospects and strategic acquisitions can drive stocks.
However, when a string of positive developments dominate the market, investors find their under-reaction unwarranted and the renewed interest might drive stocks beyond the 52-week high bar. Wall Street’s fast paced trading makes it imperative for investors to step in before the market gets a whiff of it.
Also, recent academic research reveals that if a stock’s current price is near its 52-week high, there are high chances that it will outperform peers in the subsequent period. According to researchers George and Hwang, holding 52-week high stocks for six months resulted in an average monthly gain of 0.45% between 1963 and 2001. Encouragingly, this is twice the gain that can be garnered from similar momentum-based strategies.
Setting the Right Filters
Our diligent screening technique has been deployed to find 52-week high stocks that hold tremendous potential compared to their respective industries. The added parameters are strong earnings growth expectations, sturdy value metrics and positive price momentum.
These stocks are relatively undervalued compared to their peers, in terms of earnings as well as sales, which make us believe that they will continue their rally for quite some time.
Current Price/52 Week High >= .80
This simply is the ratio between the current price and the highest price at which the stock has traded in the past 52 weeks. A value greater than 0.8 implies that the stock is trading within 20% of its 52-week high range and is likely to touch the 52-week high mark soon.
% Change Price – 4 Weeks > 0
It ensures that the stock price has moved north over the past four weeks.
% Change Price – 12 Weeks > 0
This metric guarantees a continued upward price momentum for the stock over the past three months as well.
Price/Sales <= XIndMed
The lower, the better.
P/E using F(1) Estimate <= XIndMed
This metric measures the amount an investor puts into a company to obtain one dollar of earnings. It narrows down the list of stocks to those that are undervalued compared to their peers.
One-Year EPS Growth F(1)/F(0) >= XIndMed
This helps choose stocks that have higher growth rates than the industry median. This is a meaningful indicator as decent earnings growth adds to investor optimism.
Zacks Rank = 1
No screening is complete without our proven Zacks Rank, which has proved its worth since inception. It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to brave adversities and beat the market
Current Price >= 5
This parameter will help screen stocks which are trading at $5 or higher.
Volume – 20 days (shares) >= 100000
Inclusion of this metric ensures that there is a substantial volume of shares that can be traded easily.
Here are five of the nine stocks that made it through the screen:
ZAGG Inc. ZAGG designs, manufactures, and distributes mobile tech accessories for smartphones and tablets. This company’s flagship brand, the invisible SHIELD, is a protective, high-tech patented film covering, designed for iPods, laptops, cell phones, digital cameras, PDAs, watch faces, GPS systems, gaming devices and other items. In the last reported quarter, the company beat estimates by 20.0%.
Telecom Argentina S.A. TEO holds a license to provide basic telephone service and fixes telecommunications links in the northern region of the Argentine Republic. Also, it provides telephone-related services to residential customers, businesses, and governmental agencies in Argentina and internationally. The company has a decent earnings surprise history beating estimates thrice over the trailing four quarters at an average of 42.0%.
Lam Research Corporation LRCX is a California-based company that designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. The company has an excellent earnings surprise history, beating estimates each time over the trailing four quarters, at an average of 4.4%.
Headquartered in Greeley, CO, Pilgrim’s Pride Corporation PPC is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. The company has expanded its business on the back of strategic acquisitions. In the last reported quarter, the company managed to beat estimates by 9.4%, putting an end to a streak of three back-to-back misses.
Headquartered in Chungbuk, South Korea, MagnaChip Semiconductor Corporation MX designs and manufactures analog and mixed-signal semiconductor products for high-volume consumer applications. The company has an average positive surprise of 86.2%, beating estimates twice in the last four quarters.