Investors generally consider a stock’s 52-week high a good criterion for an entry or exit point. 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 speculation is not absolutely baseless, not all stocks hitting a 52-week high are necessarily overpriced.
In fact, investors might lose out on top gainers in an attempt to avoid the steep prices.
Stocks such as National Fuel Gas Company (NFG – Free Report) , Enersys (ENS – Free Report) (ENS – Free Report) , Phibro Animal Health (PAHC – Free Report) and Citigroup (C – Free Report) are expected to maintain their 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 times, stocks that hit 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, which 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 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 out of the 11 stocks that made it through the screen:
National Fuel Gas Company is an integrated energy company with natural gas assets located in the prolific Appalachian basin and oil-producing assets in California. The company operates through the following segments, namely Exploration and Production and Other, Pipeline and Storage and Gathering, and Utility and Energy Marketing.
National Fuel Gas’ systematic investments should strengthen its operations and reduce greenhouse gas emissions. Strong liquidity should allow it to meet debt obligations. Its steady process of replacing and modernizing the existing pipelines should further boost earnings. The company also acquired Shell’s assets, which should further boost its top-line performance.
The Zacks Consensus Estimate for NFG’s fiscal 2025 earnings has remained steady at $6.11 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 9.49%. Shares of the company have gained 50.9% in the past year.
Enersys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, the company develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, it provides support services for clients.
EnerSys is set to benefit from its solid product offerings, a firm focus on product innovation and strengthening demand. Global megatrends, including 5G expansion, electrification, automation and decarbonization, are aiding the company. Increased sales of maintenance-free thin plate pure lead and lithium products bode well for the Motive Power segment. The Bren-Tronics buyout boosted its lithium product offerings and expanded the company’s presence in the military and defense end market.
The Zacks Consensus Estimate for ENS’ fiscal 2025 earnings has moved north by 2.6% to $9.57 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 1.57%. Shares of the company have gained 11.1% in the past year.
Phibro Animal Health Corporation is a leading global diversified animal health and mineral nutrition company. The company provides a broad range of products for food animals, including poultry, swine, beef, dairy cattle and aquaculture. In addition to animal health and mineral nutrition products, Phibro manufactures and markets specific ingredients for use in the personal care, automotive, industrial chemical and chemical catalyst industries.
The company is benefiting from strong performance within the Vaccines business and the recovery of the Mineral Nutrition and Performance Products businesses. With its extensive global presence, Phibro has a strong potential to expand into emerging markets. We expect the company’s revenues to witness a 17.3% CAGR during fiscal 2025-2027. Further, a strong, supportive balance sheet is highly encouraging.
The Zacks Consensus Estimate for PAHC’s fiscal 2025 earnings has moved north by 5.6% to $1.71 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 27.06%. Shares of the company have gained 107.2% in the past year.
Citigroup is a globally diversified financial services holding company that provides a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management, to consumers, corporations, governments and institutions. Citigroup has around 200 million customer accounts in more than 160 countries and jurisdictions.
Its business transformation initiatives, including consumer banking business exits and organizational overhaul efforts, will boost its financials in the long run. So far, Citigroup has already closed its consumer banking business in nine countries. Upbeat activities across debt capital markets are expected to support its IB business. Its net interest income (NII) is likely to benefit from Fed rate cuts.
The Zacks Consensus Estimate for C’s 2025 earnings has moved north by 4.4% to $9.45 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 17.07%. Shares of the company have gained 48.7% in the past year.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
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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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