The new administration’s optimism over the longevity of the eight-year Bull Market, the impressive rally of all major indices over the past six months and overall positive economic indicators reinstate our belief in the momentum investing rulebook.
The momentum investment strategy tends to bet on high-flying stocks in a bull phase. In this screening article, we focus on the 52-week investment strategy, which loosely borrows from the basics of momentum investing.
Being one of the relatively new investment techniques, the 52-week investment strategy banks on Wall Street’s current favorite catchphrase “buy high and sell higher.” Though skeptics may raise a brow on the mettle of this approach, a certain degree of caution is needed to avoid the pitfalls.
Rely on our screener to stop chasing fads blindly! Let’s take a look at how you could club other parameters with this strategy to turn the tide in your favor.
A Peek into 52-Week High Stocks
Stocks near 52-week highs often instill the presumptive “adjustment and anchoring bias” 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 stocks higher.
However, when a string of positive developments dominate 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 that it will outperform peers in the subsequent period. According to researchers George and Hwang, holding 52-week high stocks for six months 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
The lower, the better.
P/E using F(1) Estimate
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 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 five of the 12 stocks that made it through the screen:
Headquartered in Houston, TX, NCI Building Systems, Inc., (NYSE:NCS) is an integrated manufacturer of metal products for the building industry. It sells metal building components and engineered building systems and offers extensive metal product lines in the building industry. The company has a decent surprise history with an average positive surprise of 11.3%, beating estimates twice over the trailing four quarters.
SYNNEX CORPORATION (NYSE:SNX) is a global IT supply chain services company offering a comprehensive range of services to original equipment manufacturers and software publishers and reseller customers worldwide. The company has managed to beat estimates each time over the trailing four quarters at an average of 14.8%.
Headquartered in Hayward, CA, Ultra Clean Holdings, Inc. (NASDAQ:UCTT) is a developer and supplier of critical subsystems for semiconductor capital equipment, consumer, medical, energy, industrial, flat panel, and research industries. The company has an average positive surprise of 28.0% for the trailing four quarters, with four back-to-back beats.
Headquartered in Simpsonville, SC, KEMET Corporation (NYSE:KEM) manufactures and sells passive electronic components under the KEMET brand worldwide. It is the world's largest manufacturer of solid tantalum capacitors and one of the largest manufacturers of multilayer ceramic capacitors. It has a positive average surprise of 72.9% over the trailing four quarters, beating estimates thrice.
Altra Industrial Motion Corp. (NASDAQ:AIMC) , incorporated in 2004, is currently headquartered in Braintree, MA. The company is one of the leading manufacturers and distributors of a diversified range of mechanical power transmission, or MPT components. It offers clutches & brakes, couplings, and gearing & power transmission components. Altra Industrial managed to beat estimates each time over the trailing four quarters and boasts an average positive surprise of 16.9%.
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.
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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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Ultra Clean Holdings, Inc. (UCTT): Free Stock Analysis Report
NCI Building Systems, Inc. (NCS): Free Stock Analysis Report
Synnex Corporation (SNX): Free Stock Analysis Report
Kemet Corporation (KEM): Free Stock Analysis Report
Altra Industrial Motion Corp. (AIMC): Free Stock Analysis Report
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