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 GIII Apparel Group GIII, Constellation Energy Corporation CEG, Consolidated Water CWCO and DaVita DVA 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 four stocks of the eight stocks that made it through the screen:
G-III Apparel Group is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. G-III Apparel’s strategic priorities include driving power brands across categories, enhancing its portfolio via ownership of brands and licensing opportunities, expanding its global reach, maximizing omnichannel capabilities and scaling the private label business. G-III Apparel has also been making progress on rightsizing the inventory. Management remains optimistic about the company’s diversified portfolio of key brands, namely DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, Nautica and Halston.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for GIII’s fiscal 2024 earnings has increased 14.3% to $3.27 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 526.64%.
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 remained steady at $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%.
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 10.6% to $1.46 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%.
DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end-stage renal disease. The company has been expanding its global presence via its Integrated Kidney Care business. It has been generating solid revenues by providing dialysis services.
With respect to DaVita’s Integrated Kidney Care, as of Jun 30, 2023, the company had approximately 64,000 patients in risk-based integrated care arrangements, representing approximately $5.2 billion in annualized medical spend. DaVita has been opening and acquiring several dialysis centers, both within the United States and overseas, which is promising. A strong solvency position is an added plus.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for DVA’s 2023 earnings has increased 0.1% to $7.23 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 21.41%.
Constellation Energy Corporation (CEG): Free Stock Analysis Report
DaVita Inc. (DVA): Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report
Consolidated Water Co. Ltd. (CWCO): Free Stock Analysis Report
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