Stocks near a 52-week high compel investors to take a closer look for possibilities of a further rise. The truth is there is no crystal ball or time-tested strategy that can help one determine the impending trend.
Though touted as one of the riskier investing techniques, a sizable number of investors are picking undervalued stocks near 52-week high with the conviction that they will scale higher. The odds are difficult, if not impossible, to gauge. 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.
Here at Zacks we will help you hitch a quick ride on the 52-week high bandwagon to earn some profits. Clubbing 52-week high stocks with the correct set of parameters is all you need to turn the tide in your favor.
Our screen will provide you with a clear investment strategy and help you minimize the risks associated with any ad-hoc strategies.
A Peek into 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 stocks higher.
However, when a string of positive developments dominate 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 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.
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 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 five of the nine stocks that made it through the screen:
Headquartered in Simpsonville, SC, KEMET Corporation KEM manufactures and sells passive electronic components under the KEMET brand worldwide. It is the world's largest manufacturer of solid tantalum capacitors and one of the largest manufacturers of multilayer ceramic capacitors. It has a positive average surprise of 92.4% for the trailing four quarters, beating estimates thrice.
Altra Industrial Motion Corp. AIMC, incorporated in 2004, is currently headquartered in Braintree, MA. The company is one of the leading manufacturers and distributors of a diversified range of mechanical power transmission, or MPT components. It offers clutches & brakes, couplings, and gearing & power transmission components. Altra Industrial managed to beat estimates each time over the trailing four quarters and boasts an average positive surprise of 16.9%.
ZAGG Inc. ZAGG designs, manufactures, and distributes mobile tech accessories for smartphones and tablets. This company’s flagship brand, the invisible SHIELD, is a protective, high-tech patented film covering, designed for iPods, laptops, cell phones, digital cameras, PDAs, watch faces, GPS systems, gaming devices and other items. In the last reported quarter, the company beat estimates by 20.0%.
Telecom Argentina S.A. TEO holds a license to provide basic telephone service and fixes telecommunications links in the northern region of the Argentine Republic. Also, it provides telephone-related services to residential customers, businesses, and governmental agencies in Argentina and internationally. The company has beat estimates twice over the trailing four quarters at an average of 19.0%.
Headquartered in Greeley, CO, Pilgrim's Pride Corporation PPC is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. Since its inception in 1946, the company has expanded its business on the back of strategic acquisitions like that of Green Acre Foods, Inc., WLR Foods, Inc. and Gold Kist. In the last reported quarter, the company managed to beat estimates by 10.6%, putting an end to its streak of three back-to-back misses.
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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ZAGG Inc (ZAGG) : Free Stock Analysis Report
Kemet Corporation (KEM) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
Altra Industrial Motion Corp. (AIMC) : Free Stock Analysis Report
Telecom Argentina Stet - France Telecom S.A. (TEO) : Free Stock Analysis Report
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