3 Stocks Trading Near 52-Week High With More Upside Potential
Investors generally consider 52-week high as a good criterion to determine an entry or exit point for a given stock. However, stocks touching new 52-week highs are often predisposed to profit-taking, resulting in pullbacks and trend reversals.
Moreover, given the high price, investors often wonder if the stock is overpriced. While the speculations are not absolutely baseless, all stocks hitting a 52-week high are not necessarily overpriced.
In fact, investors might lose out on top gainers in an attempt to avoid the steep prices.
Stocks such as Consolidated Water CWCO, Fluor Corporation FLR and Steelcase SCS are expected to maintain the momentum and keep scaling new highs. More information on a stock is necessary to understand whether or not there is scope for further upside.
Here, we discuss a strategy to find the right stocks. The technique borrows from the basics of momentum investing and bets on “buy high, sell higher.”
52-Week High: A Good Indicator
Many a time, stocks hitting a 52-week high fail to scale higher despite having potential. This is because investors fear that the stocks are overvalued and expect the price to crash.
Overvaluation is natural for most of these stocks as investors’ focus (or willingness to pay the premium) has helped them reach the level. But that does not always indicate an impending decline. Factors such as robust sales, surging profit levels, earnings growth prospects and strategic acquisitions that encouraged investors to bet on these stocks could keep them motivated if there is no tangible negative. In other words, the momentum might continue.
Also, when a string of positive developments dominates the market, investors find their under-reaction unwarranted, even if there are no company-specific driving forces.
Setting the Right Filters
We ran a screen to zero in on 52-week high stocks (trading near the high level) that hold tremendous upside potential. The screen includes parameters to shortlist stocks with strong earnings growth expectations, sturdy value metrics and price momentum.
Moreover, the screen filters stocks that are relatively undervalued compared to their peers in terms of earnings as well as sales, ensuring the continuation of their rally for some time.
Current Price/52 Week High >= .80
This 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 the stock is trading within 20% of its 52-week high range.
% 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 the industry.
One-Year EPS Growth F(1)/F(0) >= XIndMed
This helps choose stocks that have higher growth rates than the industry. This is a meaningful indicator, as decent earnings growth adds to investor optimism.
Zacks Rank =1
No screening is complete without the Zacks Rank, which has proved its worth since its inception. It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) have always managed to brave adversities and beat the market average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Current Price >= 5
This parameter will help screen stocks that are trading at $5 or higher.
Volume – 20 days (shares) >= 100000
The inclusion of this metric ensures that there is a substantial volume of shares, so trading is easier.
Here are our three picks of the five stocks that made it through the screen:
Consolidated Water Co., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or non-existent. The company is poised to benefit from rising demand for desalination units, given its expertise in the field. It is expanding operations via acquisitions and organic projects. The acquisition of the full ownership of PERC and the return of tourism to the Cayman Islands are expected to drive earnings. The company has enough liquidity to address its short-term debt obligations.
The Zacks Consensus Estimate for CWCO’s 2023 earnings has increased 10.6% to $1.46 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same twice, the average surprise being 23.81%.
Fluor provides engineering, procurement, construction and maintenance services through a number of subsidiaries. Fluor’s Energy Solutions segment is expected to benefit from the energy transition space. Increased execution activities on refinery and LNG projects in North America, along with contributions from NuScale, bode well for the company’s Energy Solutions segment.
Apart from the Energy Solutions segment, new cost-plus/low-risk bookings have been driving solid top-line growth for the company. Within the Advanced Technologies & Life Sciences business, FLR has been a key project delivery partner for many new biopharmaceutical facilities, including brownfield expansions and new greenfield campus developments. FLR also has been positioning itself for major semiconductor fabrication ventures in both Idaho and Oregon.
The Zacks Consensus Estimate for FLR’s 2023 earnings has increased 7.6% to $2.13 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate once in the trailing four quarters while missing the same thrice, the average negative surprise being 5.25%.
Steelcase is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services.
Last month, Steelcase announced that it has partnered with the online database Ecomedes to streamline how architects, designers and customers can access its product sustainability information to design workspaces with intention. Such partnerships are expected to drive top-line growth in the near term.
The Zacks Consensus Estimate for CWCO’s 2023 earnings has increased 29.8% to 74 cents per share in the past 30 days. The company surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same twice, the average surprise being 233.07%.
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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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Fluor Corporation (FLR) : Free Stock Analysis Report
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Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report
