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 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 PBF Energy Inc. PBF, Unum Group UNM, HF Sinclair DINO and TravelCenters of America TA 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 >= .08
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 0.08 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 11 stocks that made it through the screen:
PBF Energy is a leading refiner of crude. Through five oil refineries and associated infrastructure in the United States, the company provides end products that comprise heating oil, transportation fuels, lubricants and many related products. The company’s daily processing capacity of 1,000,000 barrels of crude is higher than most of its peers. It has one of the most complex refining systems in the United States, with an overall Nelson Complexity Index reading of 13.2. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The company currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for PBF Energy’s 2022 earnings has been revised upward by 9% to $20.69 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 77.97%.
Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Unum’s conservative pricing and reservation practices have contributed to overall profitability. The sustained increase in premiums is fueled by high persistency levels in core business lines and strong sales volume along with solid benefits experience. The continued rollout of dental products and geographic expansion have been paying off as acquired dental insurance businesses are growing in the United States and the United Kingdom.
The company currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for Unum Group’s 2022 earnings has been revised upward by 1.5% to $6.12 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 30.13%.
HF Sinclair is an energy company, which produces and markets light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. HF Sinclair also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming and markets its refined products principally in the Southwest United States and the Rocky Mountains, Pacific Northwest, and other neighboring Plains states. In August 2022, HF Sinclair announced its second-quarter 2022 results. In the quarter, it commenced the Artesia, NM, renewable diesel unit. HF Sinclair will continue to ramp up production of these assets as it expects to reach full production levels by the end of the third quarter.
The company currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for HF Sinclair’s 2022 earnings has been revised upward by 7.1% to $14.26 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 710.11%.
TravelCenters of America operates travel centers and standalone restaurants in the United States and Canada. Its travel centers offer a range of products and services, including diesel fuel and gasoline, diesel exhaust fluid, truck repair and maintenance, and roadside services. TravelCenters of America also operates full-service and quick-service restaurants and various customer amenities. It operates restaurants under the franchise agreement.
The company currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for TravelCenters of America’s 2022 earnings has been revised upward by 6.9% to $8.08 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 1738.58%.
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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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Unum Group (UNM) : Free Stock Analysis Report
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