Stocks hitting their 52-week high and delivering consistent performance offer attractive opportunities to investors while building a portfolio. This is because stocks near that level are perceived to be winners. However, stocks touching a new 52-week high 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 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 Synchrony Financial SYF, Federated Hermes FHI, Norwegian Cruise Line NCLH and State Street STT are expected to maintain their momentum and keep scaling new highs. Extensive 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.”
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.
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.
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.
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 0.11 implies that 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 $8 or higher.
The inclusion of this metric ensures that there is a substantial volume of shares, so trading is easier.
Here are four stocks of the 17 that made it through the screen:
$Synchrony Financial(SYF-B)$’s strategy of bolstering its CareCredit platform within the health systems space will enhance its results. Its commitment to forming partnerships and pursuing acquisitions is poised to stimulate business growth and augment its digital capabilities. Supported by a robust balance sheet, SYF can effectively reward shareholders through buybacks and dividends. Its shares have outperformed the industry in the past year.
Net interest income for the fourth quarter is anticipated to be sequentially flat. It broke a four-year consecutive declining trend in free cash flow in 2023. Now, whether it can draw an upward curve remains to be seen. Its ROIC is higher than the industry average, indicating efficient utilization of capital. Consequently, SYF is expected to offer substantial upside potential from the current price levels.
The Zacks Consensus Estimate for SYF’s 2024 earnings has moved north by 1.6% to $1.52 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 4.46%.
Federated Hermes, Inc.’s continued strategic acquisition of money market assets supports assets under management (AUM) growth. Acquiring money market assets depicts the buoyancy of Federated in the money market business. In the first half of 2024, money market assets witnessed significant growth. Increased money market AUM will provide the company with various new fund offerings to benefit its clients. In the last few years, the company has inked strategic deals and expanded operations in the strategic markets.
The buyout of C.W. Henderson and Associates, Inc. expands its separately managed account business. The company continues to seek alliances and acquisitions to expand its business globally. Its average AUM witnessed a five-year (ended 2023) CAGR of 11.9%, with the uptrend continuing in the first half of 2024. The company’s inorganic growth efforts are expected to drive average AUM further.
The Zacks Consensus Estimate for FHI’s 2024 earnings has moved north by 5.7% to $3.15 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 9.35%.
Norwegian Cruise Line Holdings, a Bermuda Limited company, is a leading cruise line operator. It owns and operates three brands — Oceania Cruises, Regent Seven Seas Cruises and Norwegian Cruise Line. NCLH is benefiting from strong demand, high pricing and increased booking volumes, leading to record advance ticket sales. Its focus on fleet expansion efforts and digital initiatives bodes well. These factors showcase that the company’s strategy is well-aligned with its growth goals and 2026 financial and sustainability targets. Given the substantial progress made so far and current demand expectations, the company raised its 2024 full-year guidance.
The Zacks Consensus Estimate for NCLH’s 2024 earnings has increased by 3.1% to $1.64 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 4.18%.
State Street Corporation is a financial holding company. It provides a range of products and services for institutional investors worldwide through its subsidiaries. The company primarily performs its business through its principal banking subsidiary, State Street Bank. Solid business servicing wins, a global footprint and strategic buyouts will support its fee income. We expect total fee revenues to record a CAGR of 3.3% by 2026. The rising AUM balance supports its financials. Our estimates for total AUM imply a CAGR of 7.3% by 2026.
The Zacks Consensus Estimate for STT’s 2024 earnings has moved north by 0.5% to $8.42 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 10.63%.
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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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