It is hard to ignore stocks that scale 52-week highs or hit the lows as such movements are tracked on a daily basis. But the question here is: what importance does such a stock movement hold from an investor’s perspective?
In this screening article, we discuss the 52-week investment plan. One of the relatively new entries in the investing rulebook, this strategy relies on the mantra, “buy high and sell higher.” Betting on a stock near its 52-week high has its own pitfalls as there is a possibility of it scaling higher or going downhill without forewarning.
While market analysts may be divided in their opinion regarding the 52-week high investment technique, many of them believe that 52-week high stocks which are still undervalued and have strong upside potential can be lucrative bets.
An Insight 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 > 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 21 stocks that made it through the screen:
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 earnings beats in the last four quarters, the company has an average positive surprise of 10.98%.
Malvern, PA-based Vishay Intertechnology Inc. (VSH - Free Report) is a global manufacturer and supplier of discrete semiconductors and passive components. We note that the company has beaten the Zacks Consensus Estimate thrice in the preceding four quarters, delivering an average positive earnings surprise of 5.97%.
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 three of the trailing four quarters, the average being 15.90%.
Based in Fremont, CA, Lam Research Corporation (LRCX - Free Report) designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company has an average four-quarter positive earnings surprise of 5.33%.
DXC Technology Company (DXC - Free Report) Headquartered in Tysons, VA, DXC Technology is the world’s second-largest end-to-end IT services provider offering a broad array of professional services to clients in the global, commercial and government markets. The company has an average positive earnings surprise of 25.43% for the past four quarters.
Western Digital Corporation (WDC - Free Report) , based in Irvine, CA, develops, manufactures, and sells data storage devices and solutions. Notably, the company surpassed earnings estimates in all of the four trailing quarters, the average surprise being 8.43%.
Headquartered in Poway, CA, Cohu, Inc. (COHU - Free Report) is engaged in the development, manufacturing, sale and servicing of semiconductor test and inspection handlers, micro-electro mechanical system test modules and thermal sub-systems. The company has an average positive surprise of 63.12% for the trailing four quarters, beating estimates all through.
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.
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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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