Over the past few decades, the investment vehicles and strategies available to investors have increased drastically. Admittedly, devising the right strategy from the extensive pool of information to compound portfolio returns might prove to be quite a daunting task, for both seasoned and relatively new investors.

To make things easier, rely on our tried and tested investment screens, which club the most meaningful parameters to help you rake in solid returns. Here, we discuss one of the relatively new investment techniques, that is betting on stocks near a 52-week high. 

The 52-week investment strategy relies on the new investment mantra, “buy high and sell higher.” A wide group of investors are placing their bets on stocks which are hovering around their 52 week high mark.

However, this touch-and-go strategy should not be followed blindly without a fool-proof plan. Rely on our screener to stop chasing fads blindly! Let’s take a look at how you could club these stocks with the right set of parameters to turn the tide in your favor.

A Peek in to 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 the stock higher.

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 > 5

It ensures that the stock price has moved north over the past four weeks.

% Change Price – 12 Weeks > 5

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. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 10 stocks that made it through the screen:

Weight Watchers International, Inc. (WTW Quick QuoteWTW - Free Report) offers a broad range of weight control programs. The company offers scientifically designed programs, including group support and information on healthy eating patterns, behavior modification and physical activity. With three beats over the trailing four quarters, the company has a positive average surprise of 24.3%.

Headquartered in Hayward, CA, Ultra Clean Holdings, Inc. (UCTT Quick QuoteUCTT - Free Report) is a developer and supplier of critical subsystems for semiconductor capital equipment, consumer, medical, energy, industrial, flat panel, and research industries. The company has an average positive surprise of 28.0% for the trailing four quarters, with back-to-back beats.

Headquartered in Santa Clara, CA, Applied Materials (AMAT Quick QuoteAMAT - Free Report) is engaged in developing, manufacturing and marketing semiconductor wafer fabrication equipment and related spare parts for the semiconductor industry. The company has an average positive surprise of 3.3% over the trailing four quarters, beating estimates each time.

Established in 1980 and headquartered in Fremont, CA, Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) supplies wafer fabrication equipment and services to the semiconductor industry. Its products are used by semiconductor manufacturers. The company has a striking earnings surprise history with a positive average surprise of 6.1%, beating estimates each time over the trailing four quarters.

Based in Chicago, IL, Telephone and Data Systems Inc. (TDS Quick QuoteTDS - Free Report) is a diversified telecom service provider offering wireless and wireline services in 36 states. The company owns 83% of U.S. Cellular, the seventh largest wireless operator in the U.S. subscriber-wise, serving 4.68 million customers. The company has a whopping average positive surprise of 802.4% over the trailing four quarters.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your trial to the Research Wizard today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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