Investors generally consider 52-week high as a criterion to pick stocks. This is because stocks near that level are perceived to be winners.
However, 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 PBF Energy Inc. PBF, Pilgrim’s Pride Corporation PPC, Avnet Inc. AVT, Oasis Petroleum OAS and Delek US Holdings, Inc. DK 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 >= .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 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 <=2
No screening is complete without the Zacks Rank, which has proved its worth since inception. 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 that are trading at $5 or higher.
Volume – 20 days (shares) >= 100000
Inclusion of this metric ensures that there is a substantial volume of shares, so trading is easier.
Here are the five of the 26 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 Zacks Consensus Estimate for PBF Energy’s 2022 earnings has been revised upward by 51.8% to $5.77 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 61.4%.
Pilgrim’s Pride is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. The company offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through a number of distributors, retailers and food service operators. The company is focusing on strengthening its Prepared Foods category. Also, the company has been increasing its product mix for the organic category, including No-Antibiotics-Ever products, to cater to customers’ evolving tastes. The company currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Pilgrim’s Pride Corporation’ 2022 earnings has been revised upward by 17.3% to $3.26 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 31.3%.
Avnet is one of the world’s largest distributors of electronic components and computer products. The company benefits from robust demand for its products in the communication and defense market. Its continued focus on boosting Internet Of Things capabilities is helping it expand in newer markets and gain customers. Moreover, cost-saving efforts are aiding profitability. Avnet’s expanding partner base is likely to boost top-line growth. The company currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Avnet’s 2022 earnings has been revised upward by 20.5% to $6.83 per share in the past 30 days. Avnet surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 21.2%.
Oasis Petroleum is an independent explorer, engaged in the acquisition and development of oil and natural gas resources. Oasis’ impending ”merger of equals” with Whiting Petroleum is expected to create a leading Williston Basin position in North Dakota and Montana, with top-tier assets spanning over 972,000 net acres and an output of about 167,800 barrels of oil equivalent per day, an improved free cash flow generation and a substantial scale of operations. The company currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Oasis Petroleum’s 2022 earnings has been revised upward by 8.4% to $37.09 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 19.6%.
Delek US Holdings is an independent refiner, transporter and marketer of petroleum products. The company’s operations are organized into three reportable segments: Refining, Logistics and Retail. The 2017 purchase of Alon USA Energy transformed Delek into a Permian-focused diversified downstream energy company with an opportunity for cash synergies. With 70% of Delek’s refining capacity leveraged to favorable Permian pricing, the company is poised for significant bottom-line growth. The company currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Delek’s 2022 earnings has been revised upward by 95.3% to $3.32 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 172.2%.
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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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Avnet, Inc. (AVT) : Free Stock Analysis Report
Delek US Holdings, Inc. (DK) : Free Stock Analysis Report
Pilgrim’s Pride Corporation (PPC) : Free Stock Analysis Report
PBF Energy Inc. (PBF) : Free Stock Analysis Report
Oasis Petroleum Inc. (OAS) : Free Stock Analysis Report
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