Of late, a sizable number of investors have been disregarding the past performance of a stock and instead have been focusing on the current price and the 52-week high trend. This theory is rooted in Wall Street's reliable buzzword "buy high and sell higher." Contemporary research reveals that current price levels reflect a stock's momentum better than past changes.
This implies that if a stock is trading close to its 52-week high, chances are that it will perform better in the subsequent period. Here, the trick lies in discovering soaring stocks that are still undervalued with strong upside potential.
We believe that the unanticipated victory of Donald Trump gives investors the opportunity to rake in profits by cashing in on the bullish market trend. Borrowing from the basics of momentum strategy, investing in 52-week high stocks can prove to be a reliable strategy for investors wanting to secure high returns over a short span.
Our 52-week high investment screen will help you find stocks that are unlikely to go against the drift. We have clubbed this with the correct set of parameters to turn the tide in your favor.
How Does it Work?
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.
Overall it can be said, the proximity of a stock to its 52-week high range gauges the degree of under-reaction. The closer the price is to this level, the greater is the possibility that the stock has under-reacted to a favorable development.
Parameters to Rely On
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.
Lower the ratio, 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 metric 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 Zacks Rank, which has proved its worth since inception. 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 13 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%.
Premier, Inc.PINC operates as a healthcare alliance. The company brings together hospitals, health systems, physicians and other healthcare providers primarily in the U.S. Premier beat earnings estimates thrice in the trailing four quarters.
Teck Resources LimitedTECK is a diversified resource company committed to responsible mining and mineral development with major business units focused on copper, metallurgical coal, zinc, gold and energy. With a total of three beats over the trailing four quarters, Tack Resources has an average positive earnings surprise of 105.1%.
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.
Headquartered in Sugar Land, TX, Applied Optoelectronics, Inc.AAOI designs, develops and manufactures advanced optical devices, packaged optical components, optical subsystems, laser transmitters and fiber optic transceivers. The company has a whopping average positive surprise of 106.7%, with two solid beats over the trailing four quarters.
MDU Resources Group, Inc.MDU offers value-added natural resource products and related services for energy and transportation infrastructure business lines, including regulated businesses, exploration & production and construction companies. The company managed to beat earnings thrice, with a positive average beat of 12.0% 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.
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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