4 Stocks Trading Near 52-Week High That Can Scale Higher

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.

A good stock can maintain the momentum and keep scaling new highs. So, more information on a stock is necessary to understand whether there is scope for further upside.

Here we discuss a strategy to find the right stocks, which 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 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 continuation of their rally for some time.

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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 ...

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