The 52-week investment strategy is one of the relatively new entries in the investing rule book. Borrowing from the basics of Momentum investing, this technique bets on the catchphrase “buy high and sell higher.”A wide group of investors today favor winning stocks with prospects of scaling higher. These investors have mastered the art of finding stocks that have strong upside potential and are still undervalued.
Though betting on 52-week high stocks without a clear investment blueprint is outright dangerous, even naïve, clubbing it with the correct parameters is all what you need to turn the tide in favor.
Here at Zacks we help you avoid the pitfalls and book a ride on the 52-week high stocks that offer handsome returns.
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 start dominating 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 has 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. 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 seven of the 18 stocks that made it through the screen:
Founded in 1983 and headquartered in Chicago, IL, Navigant Consulting Inc. (NCI - Free Report) is a provider of specialized consulting services. It serves industries undergoing regulatory and structural changes, including construction, energy, financial services and healthcare. The company managed to surpass estimates in all of the trailing four quarters, clocking an average positive surprise of 29.3%.
Incorporated in 1959, Houston, TX-based McDermott International Inc. (MDR - Free Report) is an engineering and construction company, solely focused on the offshore oil and gas business. The company has a whopping average earnings surprise of 474.0%, beating estimates in all of the trailing four quarters.
Idaho-based Micron Technology, Inc. (MU - Free Report) is a provider of advanced semiconductor solutions. Through its worldwide operations, the company manufactures and markets Dynamic Random Access Memory, NAND flash memory, CMOS image sensors, other semiconductor components and memory modules used in leading-edge computing, consumer, networking and mobile products. With an earnings beat in all the four quarters, the company has an average positive surprise of 31.5%.
Winnebago Industries, Inc.(WGO - Free Report) is a leading manufacturer of recreational vehicles in the U.S. The company distributes its products through independent dealers throughout the U.S. and Canada. The company beat estimates twice in the trailing four quarters, the average positive surprise being 1.2%.
Amkor Technology, Inc. (AMKR - Free Report) : Amkor is the world's largest independent provider of semiconductor packaging and test services. Also, the company is one of the leading developers of advanced semiconductor packaging and test technology.The companybeat earnings estimates in three out of the trailing four quarters at an average of 62.5%.
Cambrex Corporation(CBM - Free Report) manufactures and markets a broad line of specialty chemicals and commodity chemical intermediates and also manufactures chemicals to customer specifications.With three beats in the trailing four quarters, the company’s average earnings beat stands at 19.8%.
Coherent Inc.(COHR - Free Report) designs, manufactures, and supplies electro-optical systems and medical instruments utilizing laser, precision optic and microelectronic technologies. The company beat estimates in all of the trailing four quarters, at an average of 10.0%.
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.
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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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