To make the most of the market’s recent Bull Run, placing your bets on solid momentum stocks in a timely manner can help make some quick bucks. In this screening article, we discuss the 52-week investment strategy, which loosely borrows from the basics of Momentum investing.
The 52-week investment strategy is one of the relatively new entries in the investing rulebook. Borrowing from the basics of Momentum investing, this technique thrives 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. You can now join their ranks by following our smart 52-week high investment screen, which will help you book impressive gains. We have clubbed this with the correct set of parameters to turn the tide in your favor.
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 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 > 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 15 stocks that made it through the screen:
Idaho-based Micron Technology, Inc. MU manufactures and markets Dynamic Random Access Memory, NAND flash memory, CMOS image sensors, other semiconductor components and memory modules. These are 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 17.2%.
Headquartered in Santa Clara, CA, Applied Materials AMAT 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.
Headquartered in the Ruian District of Wenzhou City, China, SORL Auto Parts, Inc. SORL specializes in the development, production and distribution of air brake valves and hydraulic brake valves. The company has an excellent earning surprise history, beating estimates each time in the trailing four quarters at an average of 94.5%.
Headquartered in Ronkonkoma, NY, Lakeland Industries, Inc. LAKE manufactures and sells safety garments and accessories for the industrial and public protective clothing market globally. The company has an average earnings surprise of 49.3% over the trailing four quarters, beating estimates thrice.
Headquartered in Houston, TX, NCI Building Systems, Inc., is an integrated manufacturer of metal products for the building industry. It sells metal building components and engineered building systems and offers extensive metal product lines in the building industry. The company has a decent surprise history with an average positive surprise of 11.3%, beating estimates twice over the trailing four quarters.
Headquartered in Simpsonville, SC, KEMET Corporation KEM manufactures and sells passive electronic components under the KEMET brand worldwide. It is the world's largest manufacturer of solid tantalum capacitors and one of the largest manufacturers of multilayer ceramic capacitors. It has a positive average surprise of 72.9% over the trailing four quarters, beating estimates thrice.
SYNNEX Corporation SNX is a global IT supply chain services company offering a comprehensive range of services to original equipment manufacturers and software publishers and reseller customers worldwide. The company has managed to beat estimates each time over the trailing four quarters at an average of 14.8%.
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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