5 Stocks Trading Near 52-Week High That Can Scale Higher
Zacks Investment Research | Sep 20, 2021 09:30PM ET
Investors generally consider a 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.
A good stock can maintain its momentum and keep scaling new highs. So, 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/h3
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/h3
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/h3
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/h3
It ensures that the stock price has moved north over the past four weeks.
% Change Price – 12 Weeks > 0/h3
This metric guarantees a continued upward price momentum for the stock over the past three months as well.
Price/Sales /h3
The lower, the better.
P/E using F(1) Estimate /h3
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/h3
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/h3
No screening is complete without the Zacks Rank, which has proved its worth since 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 https://www.zacks.com/performance
Get The News You Want
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. To read this article on Zacks.com click here.
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