4 Buys Near 52-Week Highs

TheStreet.com

NEW YORK (TheStreet) -- It might be counter-intuitive for value-seeking buyers but buying a stock making new 52-week highs is often a better choice.

There's a reason why stocks making new highs are performing well, and there's no argument why you, too, can't profit.

Even value buyers can look at strong-performing stocks because it takes time for the market to fully discount changes occurring in sectors, industries and individual companies. Think of market delays as your friend and window to profit. It's also the reason why stocks continue established trends as long as they do.

In my Jan. 9 "Five Buys Near 52-Week Highs" article, the picks made an average gain of over 10%.

Here are the results starting Jan. 9 until May 7, using closing prices for entries and exits.

Old Republic International + 26.7%

Coca-Cola Enterprises +0%

Time Warner + 30.8%

PulteGroup + 30.6%

Sirius XM Radio + 8.6%

Old Republic's cost basis is calculated differently ($11) because of my instructions to wait for under $11.


Coca-Cola Enterprises increased as expected. I advised to wait for a pullback to $32 before entry. Investors who didn't wait for a drop profited, but the gains aren't included because my entry price was not reached. Here is what I wrote for reference: "Holding out for $32 may mean you miss another leg higher without looking back, but the alternative may mean paying much more than you need to."

We can't expect five out of five winners every time, but take a look at this selection to begin your process of determining if they belong in your portfolio.

CCE Chart
CCE data by YCharts

Coca-Cola Enterprises produces, distributes and markets nonalcoholic beverages. It provides still and sparkling waters, juices, sports drinks, juice drinks, coffee-based beverages, and teas. The company trades an average of 2.6 million shares per day with a market cap of $10.3 billion.

52-Week High:$37.66

Beta: 0.77

Price to Book: 4.55

Once again Coca-Cola Enterprises makes my list of buys making new 52-week highs. As long as the stock continues its strong bull trend, there is little reason to get off the gravy train.

Coca-Cola Enterprises made a new 52-week high in two of the last five trading sessions. The company pays 80 cents annually in dividend payments for a yield of 2.2%. The payout ratio is small enough that fears of a dividend cut are unwarranted. In fact, the regular dividend has increased fivefold since 2005.

Look for an entry price of $37 as a reasonable entry or add on.

XRAY Chart
XRAY data by YCharts

Dentsply International

Background: Dentsply designs, develops, manufactures and markets dental consumable products, dental laboratory products and dental specialty products worldwide. The company trades an average of 1.2 million shares per day with a market cap of $6 billion.

52-Week High: $43.71

Beta: 1.37

Price to Book: 2.80

Dentsply reported earnings and the initial market reaction was resoundingly two thumbs down. However, it didn't take long for buyers to step up and acquire shares at a discount. Generally it takes two or three days before volatility settles after a surprise earnings announcement.


Dentsply doesn't have much of a yield at 0.6%, but it certainly beats no dividend. The dividend is on solid footing with less than 25% of profits paid out. On a positive note, the company does have a history of raising the dividend at least once every couple of years for the last 10 years.

After reviewing the key numbers inside the earnings report, I believe Dentsply was oversold during the start of trading after releasing the quarterly results. This sets up a buying dip for an entry price of $41.65

CIM Chart
CIM data by YCharts

Chimera Investment

Background: Chimera operates as a real estate investment trust in the United States. It was founded in 2007 and is based in New York. Chimera trades an average of 9.2 million shares per day with a market cap of $3.4 billion.

52-Week High: $3.34

Beta: 0.87

Price to Book: 1.12

Chimera made two new 52 week highs in as many months and appears ready to strike again. It's hard to miss Chimera's eye-popping 10% yield. But you shouldn't back up the truck just yet; Chimera is a mortgage REIT with potentially highly volatile earnings and dividends.

The company's board recently approved maintaining third- and fourth-quarter dividend payments at the current rate. This is exciting news for now, but our friends in Washington see REITs as a target, according to the Wall Street Journal.

Any changes in the IRS code that may restrict the tax advantage of REITs will certainly impact upon the share price. Because of the highly volatile nature of earnings and legislative peril, Chimera can be bought but with caution and with a much smaller allocation than for a typical stock.

SATS Chart
SATS data by YCharts

EchoStar

Background: EchoStar together with its subsidiaries, engages in the design, development, and distribution of digital set-top boxes and related products. EchoStar trades an average of 200,000 shares per day with a market cap of $3.55 billion.

52-Week High: $40.20

Beta: 1.23

Price to Book: 1.12

EchoStar is by far the lowest-volume trading stock in this group. I usually focus on stocks with over a million shares a day in volume, but there is a lot to like about EchoStar.

Along with Dentsply, EchoStar reported earnings that initially caused weak hands to dump their shares. It didn't take long (the low of the day today is the opening print) for the stock to recover and move on and up to a new 52-week high. With EchoStar's share strength, any dip is a buying opportunity.

EchoStar doesn't pay a dividend and is my most speculative play here. It's not my first choice, but the chart doesn't lie. The stock is clearly in a bull trend, and with earnings out of the way, it appears this bird will fly higher.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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