Stocks hitting their 52-week high and delivering consistent performance in the past few quarters offer attractive opportunities to investors while building a portfolio. This is because stocks near that level are perceived to be winners. However, stocks touching a new 52-week high 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 Group 1 Automotive GPI, Consolidated Water CWCO, Fluor Corporation FLR, Applied Materials AMAT and Oshkosh OSK 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 strategy borrows from the basics of momentum investing. This technique 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.

In fact, overvaluation is natural for most of these stocks as investors’ focus (or willingness to pay a 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 >= .11

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 0.11 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 >= 8

This parameter will help screen stocks that are trading at $8 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 five stocks of the 13 stocks that made it through the screen:

Group 1 Automotive is one of the leading automotive retailers in the world, with operations primarily located in the United States and the UK. Group 1’s diversified product mix along with omnichannel efforts bode well. The AcceleRide platform, its online retailing initiative, active at most of the firm’s U.S. dealerships, allows the company to enjoy higher productivity. The company’s aftersales performance also continues to be robust and is expected to be so through 2023. The acquisition of dealerships and franchises to expand and optimize its portfolio are major tailwinds.

The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for GPI’s 2023 earnings has increased 6.5% to $43.8 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.96%.

Consolidated Water Co., along with its subsidiaries, is involved in the development and operation of seawater desalination plants and water distribution systems in areas where naturally occurring supplies of potable water are scarce or non-existent. The company is poised to benefit from rising demand for desalination units, given its expertise in the field. It is expanding operations via acquisitions and organic projects. The acquisition of the full ownership of PERC and the return of tourism to the Cayman Islands are expected to drive earnings. The company has enough liquidity to address its short-term debt obligations.

The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for CWCO’s 2023 earnings has increased 34.7% to $1.32 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same twice, the average surprise being 23.81%.

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 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 7.5% to $1.87 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%.

Applied Materials is one of the world’s largest suppliers of equipment for the fabrication of semiconductors, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The company’s portfolio strength, expanding position in memory and increasing new design wins are likely to drive its performance in the near term. Growth opportunities across specialty nodes and new nodes ramping across foundry, logic, NAND and DRAM are key positives. The company is anticipated to witness solid customer momentum across automotive and advanced packaging owing to rising foundry logic spending.

The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for AMAT’s fiscal 2024 earnings has increased 6.1% in the past 30 days to $7.79 per share. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 10.43%.

Oshkosh is a producer and seller of a varied range of vehicle bodies and specialty vehicles. Frequent business wins and a comprehensive offering of innovative new products are set to drive Oshkosh’s prospects. Record consolidated backlog of $15 billion provides enough visibility for the coming years. The Hinowa buyout has accelerated Oshkosh’s electrification capabilities, providing growth opportunities across core and adjacent markets. Its upbeat full-year 2023 outlook raises confidence. The company estimates full-year 2023 sales to be around $9.5 billion, up from the previous estimate of $8.65 billion.

The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for OSK’s 2023 earnings has been revised upward by 28.5% to $7.85 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 27.45%.
Fluor Corporation (FLR): Free Stock Analysis Report

Applied Materials, Inc. (AMAT): Free Stock Analysis Report

Group 1 Automotive, Inc. (GPI): Free Stock Analysis Report

Oshkosh Corporation (OSK): Free Stock Analysis Report

Consolidated Water Co. Ltd. (CWCO): Free Stock Analysis Report

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