Stocks near their 52-week highs make the trickiest of investment choices as they have the possibility to soar higher or go downhill.
The odds are difficult, if not impossible, to guage. At best, 52-week investments can be described as a touch-and-go strategy which can definitely 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, let alone new ones taking baby steps into Wall Street trading. This is where our screener comes into play, as it helps you steer clear of uncertainties and book solid profits.
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.
The lower, the better.
P/E using F(1) Estimate
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 12 stocks that made it through the screen:
Coherent Inc.COHR 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%.
Leucadia National Corp.LUK is a diversified financial services holding company focusing on personal and commercial lines of property and casualty insurance, life insurance, banking and lending and manufacturing. The company delivered an average positive earnings surprise of 179.0% over the trailing four quarters.
Headquartered at Dublin, Ireland, Seagate Technology plcSTX is the second largest manufacturer of hard disk drives (HDDs) in the U.S. The company also develops other electronic data storage products such as SSD (solid state drive) and solid state hybrid drives (SSHD). Seagate has a positive earnings surprise of 3.3%, beating estimates thrice over the trailing four quarters.
Methode Electronics, Inc.MEI manufactures component devices for Original Equipment Manufacturers in multiple domains including voice and data communications systems, consumer electronics, automobiles, aerospace vehicles and industrial equipment. The company has managed to beat earnings each time over the trailing four quarters and boasts an average positive surprise of 11.9%.
Louisiana-Pacific Corp.LPX : Headquartered in Nashville, TN, the company together with its subsidiaries is engaged in manufacturing and selling of building products primarily for use in new home construction, repair and remodeling, outdoor structures, light industrial and commercial construction. Louisiana-Pacific registered an impressive positive earnings surprise of 55% for the last four quarters.
Kforce Inc.KFRC is a full-service, web-based specialty staffing firm providing flexible and permanent staffing solutions for organizations and career management for individuals. The company has a decent earnings surprise history with three beats over the trailing four quarters. The average surprise is 3.9%.
Axcelis Technologies, Inc.ACLS supplies ion implantation equipments used in the fabrication of semiconductors. The company also produces dry strip, photo stabilization and rapid thermal processing equipments, used in semiconductor manufacturing. The company managed to beat estimates each time over the trailing four quarters and boasts a whopping average positive surprise of 151.3%.
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.
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.