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 <= XIndMed
Lower the ratio, 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 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 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 seven of the 17 stocks that made it through the screen:
Fresh Del Monte Produce Inc. FDP: This company and its subsidiaries are engaged in the production, marketing and distribution of fresh and fresh-cut fruit and vegetables across the globe. The company registered a solid beat last quarter, surpassing estimates by 41.1%.
Berry Plastics Group Inc. BERY: The company is engaged in the manufacturing and marketing of value-added plastic consumer packaging and engineered materials. Berry Plastics beat estimates in three out of the trailing four quarters, the average positive surprise being 14.0%.
ANI Pharmaceuticals, Inc. ANIP: Headquartered in Baudette, MN, it is a specialty pharmaceutical company engaged in the development, manufacturing & marketing of branded and generic prescription pharmaceuticals. ANI Pharmaceuticals managed to beat estimates twice in the trailing four quarters, resulting in an average positive surprise of 46.9%.
Stoneridge Inc. SRI: The company is a designer and manufacturer of highly engineered electrical & electronic components, modules and systems for the automotive, medium and heavy-duty truck, and agricultural vehicle markets. With an earnings beat in all the four quarters, Stoneridge has an average positive surprise of 21.8%.
Cooper-Standard Holdings Inc. CPS: The company is a supplier of systems and components to the automotive industry. Its products include sealing and trim, fuel and brake delivery, fluid transfer, thermal and emissions and anti-vibration systems. Cooper-Standard managed to surpass estimates in all of the trailing four quarters, clocking an average positive surprise of 51.2%.
Amkor Technology, Inc. AMKR: Amkor is the world's largest independent provider of semiconductor packaging and test services. Also, the company is one of the leading developers of advanced semiconductor packaging and test technology. The company beat earnings estimates in each of the last four quarters at an average of 131.2%.
Companhia de Saneamento Basico do Estado de Sao Paulo SBS: The company provides public water and sewage services in the state of Sao Paulo, Brazil, which includes Sao Paulo, one of the largest cities in the world. The company's principal shareholder is the Sao Paulo government. The company has three healthy earnings beat in the trailing four quarters.
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.
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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