7 Stocks Near 52-Week Highs Worth Betting On

Over the past few decades, the investment vehicles and strategies available to investors have increased drastically. Sometimes the wide number of choices can baffle seasoned investors, let alone new ones who are planning to enter the uncharted world of jam-packed trades with the hope of making some fast bucks. Each strategy comes with its own share of risks and benefits and requires investors to exercise reasonable caution before it can be pursued.

The task of singling out one particular strategy can be quite daunting. Thanks to our investment screens, investors can now save on time and make prudent choices to create a solid portfolio. In this screening article, we discuss a particular approach which advises investors to bet on stocks that have scaled to 52-week highs.

This particular strategy is designed on the philosophy of “buy high and sell higher” that challenges the old school doctrine of “buy low and sell high”. Though skeptics may raise a brow on the mettle of this 52 week-high investment strategy, we believe that this time-tested strategy, when clubbed with the right set of parameters, will help rack up sizable gains.

An Insight into 52-Week High Stocks

Stocks nearing 52-week high often instill the presumptive “adjustment and anchoring bias” principle 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 the stock higher.

However, when a string of positive developments start dominating 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 it will outperform peers in the subsequent period. According to researchers George and Hwang, holding 52-week high stocks for six months has 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

Lower the ratio, the better.

P/E using F(1) Estimate

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 metric 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 .

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Written By: Zacks Investment Research