A stock scaling a 52-week high level is considered a winner. The level works as an indicator for many investors for buying or selling the stock.
More often than not, investors wonder if the high price range has made the stock overpriced. While the apprehensions are not completely groundless, all stocks hitting a 52-week high are not necessarily high-priced.
In fact, in an attempt to avoid stocks that are trading near their 52-week high levels, an investor might miss out on top gainers.
A stock can continue the momentum and keep scaling new highs with time. Hence a more informed approach for understanding if any further upside is left is beneficial in these cases.
Here we discuss a strategy to find the right stocks:
Borrowing from the basics of momentum investing, this technique bets on the catchphrase “buy high, sell higher.”
52-Week High: A Good Indicator
Many a time, stocks hitting 52-week high levels 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.
In fact, overvaluation is quite natural for most of these stocks as investors’ special attention (or willingness to pay premium) has helped them achieve the level. But that doesn’t always mean an impending decline. The factors — robust sales, surging profit levels, earnings growth prospects and strategic acquisitions — that motivated 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 dominate 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 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 that 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 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 that are trading at $5 or higher.
Volume – 20 days (shares) >= 100000
Inclusion of this metric ensures that there is a substantial volume of shares, so trading is easier.
Here are five of the 19 stocks that made it through the screen:
St. Louis, MO-based Stifel Financial Corp. SF is a financial services and bank holding company. The company has an average four-quarter positive earnings surprise of 8.1%.
Citizens Financial Group Inc. CFG is a bank holding company for Citizens Bank, N.A. and Citizens Bank of Pennsylvania that provides retail and commercial banking products and services in the United States. With earnings beats in the last four quarters, the company has an average positive surprise of 9.7%.
Shutterfly, Inc. SFLY manufactures and retails digital personalized products and services. It provides a range of products and services that make it easy, convenient and fun for consumers to upload, edit, enhance, organize, find, share, create, print and preserve their digital photos in a creative and thoughtful manner. The company surpassed the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive surprise of 10.4%.
Bioverativ Inc. BIVV is a biotechnology company. It focuses on the discovery, research, development, and commercialization of innovative therapies for the treatment of hemophilia and other blood disorders. With earnings beats in the last three quarters, the company has an average positive surprise of 17.1%.
Waddell & Reed WDR is an asset management and financial planning company. The company is the exclusive underwriter and distributor of a number of mutual fund portfolios. The company has an average four-quarter positive earnings surprise of 7%.
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.
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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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Shutterfly, Inc. (SFLY) : Free Stock Analysis Report
Stifel Financial Corporation (SF) : Free Stock Analysis Report
Waddell & Reed Financial, Inc. (WDR) : Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report
BIOVERATIV INC (BIVV) : Free Stock Analysis Report
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