Investors generally consider 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.
Stocks such as Vertiv VRT, Fluor Corporation FLR, Guess?, Inc. GES and Constellation Energy Corporation CEG are expected to maintain the momentum and keep scaling new highs. 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
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
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
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 the Zacks Rank, which has proved its worth since its 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.
Current Price >= 5
This parameter will help screen stocks that are trading at $5 or higher.
Volume – 20 days (shares) >= 100000
The inclusion of this metric ensures that there is a substantial volume of shares, so trading is easier.
Here are our four picks of the nine stocks that made it through the screen:
Vertiv Holdings specializes in designing, manufacturing and servicing critical digital infrastructure technologies and life cycle services. Its products are used in social media, finance, healthcare, transportation, retail, education and government sectors.
The company is benefiting from supply-chain improvements and healthy market demand. Growing demand for AI-based solutions is benefiting Vertiv’s prospects. The firm aims to help its clients deal with critical issues facing data centers, communication networks and commercial and industrial facilities through its portfolio of power, cooling and IT infrastructure solutions and services.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for VRT’s 2023 earnings has remained steady at $1.59 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same once, the average surprise being 25.66%.
Fluor provides engineering, procurement, construction and maintenance services through a number of subsidiaries. Fluor’s Energy Solutions segment is expected to benefit from the energy transition space. Increased execution activities on refinery and LNG projects in North America, along with contributions from NuScale, bode well for the company’s Energy Solutions segment.
Apart from the Energy Solutions segment, new cost-plus/low-risk bookings have been driving solid top-line growth for the company. Within the Advanced Technologies & Life Sciences business, FLR has been a key project delivery partner for many new biopharmaceutical facilities, including brownfield expansions and new greenfield campus developments. FLR also has been positioning itself for major semiconductor fabrication ventures in both Idaho and Oregon.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for FLR’s 2023 earnings has increased 13.8% to $1.98 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate once in the trailing four quarters while missing the same thrice, the average negative surprise being 5.25%.
Guess?, Inc. designs, markets, distributes and licenses casual apparel and accessories for men, women and children per American lifestyle and European fashion sensibilities. The company’s collection includes contemporary apparel, denim, handbags, eyewear, watches, footwear and other related consumer products.
Strength in its businesses across Europe and Asia, along with its focus on six strategic initiatives, bodes well. The core strategies include organization and culture, functional capacities, brand relevance with three main consumer groups (heritage, Millennials and Generation Z customers), customer focus, product brilliance, and an international footprint. Also, it is progressing with its customer-centric initiatives, including omnichannel capabilities and advanced data analytics.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for GES’s fiscal 2024 earnings has increased 6% to $2.98 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same once, the average surprise being 43.37%.
Constellation Energy generates and markets electricity. Its operating segment consists of Mid-Atlantic, Midwest, New York, ERCOT and Other Power Regions. The company sells natural gas, renewable energy and other energy-related products and services. Constellation Energy plans to invest nearly $7.6 billion during the 2023-2025 period to further strengthen its operation and generate more clean energy. Amid the ongoing conflict between Russia and Ukraine, the company decided to utilize nearly 45-47% of projected capital expenditures to acquire nuclear fuel, including additional nuclear fuel to increase inventory levels that will ensure clean power production from its nuclear units.
In June 2023, CEG announced a deal to acquire NRG Energy’s 44% ownership stake in the South Texas Project Electric Generating Station, a 2,645-megawatts (MWs) dual-unit nuclear plant. This acquisition is expected to close at the end of 2023, which will expand the clean energy production portfolio of the company.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for CEG’s 2023 earnings has increased 12.2% to $5.42 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate once in the trailing four quarters while missing the same thrice, the average negative surprise being 22.95%.
Constellation Energy Corporation (CEG): Free Stock Analysis Report
Fluor Corporation (FLR): Free Stock Analysis Report
Guess?, Inc. (GES): Free Stock Analysis Report
Vertiv Holdings Co. (VRT): Free Stock Analysis Report
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