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.
Investors might lose out on top gainers in an attempt to avoid the steep prices.
Stocks such as Molson Coors Beverage TAP, National Fuel Gas Company NFG, Enersys ENS and Jazz Pharmaceuticals JAZZ 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.”
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.
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 and sales, ensuring the continuation of their rally for some time.
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.
It ensures that the stock price has moved north over the past four weeks.
This metric guarantees a continued upward price momentum for the stock over the past three months as well.
The lower, the better.
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.
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.
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.
This parameter will help screen stocks that are trading at $5 or higher.
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 10 stocks that made it through the screen:
Molson Coors Beverage Company, previously known as Molson Coors Brewing Company, is a global manufacturer and seller of beer and other beverage products with an impressive diverse portfolio of owned and partner brands.
The company’s revitalization plan and the premiumization of its global portfolio bode well. The EMEA&APAC display a significant ability to premiumize for both beer and beyond beer. Molson Coors projects 2025 sales to increase in the low single digits year over year on a constant-currency basis. It expects 2025 underlying EPS to grow in the high single digits from 2024. The company has also anticipated annual net price increases of 1-2% in North America.
The Zacks Consensus Estimate for TAP’s 2025 earnings has moved north by 6.7 to $6.35 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 18.06%. Shares of the company have declined 1.7% in the past year.
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 boost earnings. The company also acquired Shell’s assets, which should further strengthen its top-line performance.
The Zacks Consensus Estimate for NFG’s fiscal 2025 earnings has moved north by 3.3% to $6.64 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 8.27%. Shares of the company have surged 50.2% 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. It also provides support services for clients.
EnerSys is set to benefit from its solid product offerings, firm focus on product innovation and strong 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 2.2% to $10 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 2.22%. Shares of the company have risen 9.5% in the past year.
Jazz Pharmaceuticals is a specialty biopharmaceutical company with a focus on neuroscience and oncology. The company derives most of its revenues from its sleep disorder drugs — Xywav and Xyrem.
Jazz’s revenues continue to benefit from strong demand for newer drugs like Xywav, Epidiolex and Rylaze. Sales of the epilepsy drug Epidiolex are being driven by geographic expansion in ex-U.S. markets. Jazz recently received approval for Rylaze in Europe and a new cancer drug Ziihera, which should boost oncology drug sales. Jazz continues to focus on developing its pipeline with promising candidates. It plans to report data from at least two mid- to late-stage studies in 2025.
The Zacks Consensus Estimate for JAZZ’s fiscal 2025 earnings has moved north by 1.9% to $23.58 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 2.22%. Shares of the company have jumped 22.1% 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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Molson Coors Beverage Company (TAP) : Free Stock Analysis Report
Jazz Pharmaceuticals PLC (JAZZ) : Free Stock Analysis Report
National Fuel Gas Company (NFG) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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