Investors generally consider 52-week high a good criterion for an entry or exit point for a given stock. However, 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, 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 ONESPAN OSPN, Taiwan Semiconductor TSM, Triumph Group TGI and Synchrony Financial SYF 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 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 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 eight stocks that made it through the screen:
OneSpan provides software services. The company designs and develops security software and e-signature solutions, which protect devices and financial transactions from fraud and misuse. It delivers risk analytics, mobile security and authentication services. The company is benefiting from its strong subscription revenue growth, improved product portfolio and a rich partner base.
OSPN is riding on a rapidly expanding Digital Agreements market, boosting its top-line growth. OSPN has also been benefiting from expansion contracts and new customer acquisitions, supported by the shift to digital-first workflows across industries. OneSpan’s Security segment continues to contribute to Annual Recurring Revenue through its authentication and identity verification solutions, maintaining a solid base for future expansion. OSPN recently partnered with Ping Identity to integrate FIDO-enabled solutions for password-less and stronger authentication, now available through Ping’s Integration Directory. This collaboration aims to enhance security and user experience, supporting enterprises in the digital era. Investments in SaaS offerings are driving operational efficiencies and higher gross margins, contributing to long-term scalability and profitability. A strategic shift toward high-margin software revenues is notable, as it is reducing dependency on hardware sales and strengthening profitability.
The Zacks Consensus Estimate for 2024 earnings has remained unchanged at $1.34 per share in the past 30 days. OSPN surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 506.27%. OneSpan has gained 73.4% in the year-to-date period.
Taiwan Semiconductor Manufacturer Co. is the world's largest dedicated integrated circuit foundry. As a foundry, the company manufactures ICs for its customers based on their proprietary IC designs using its advanced production processes. TSMC's goal is to establish itself as one of the world's leading semiconductor companies by building upon the strengths that have made it the leading IC foundry in the world.
Taiwan Semiconductor’s ability to innovate is unmatched. Its 3nm and 5nm process nodes dominate the market, powering chips for AI, cloud computing and next-gen smartphones. The company’s ongoing development of 2nm technology, expected to deliver up to 30% power savings, cements its leadership. Moreover, with AI adoption accelerating across industries, demand for high-performance chips is surging.
TSMC’s leadership in manufacturing AI-specific chips positions it as a major beneficiary of this trend. AI and HPC platforms now account for more than 51% of the company’s revenues, underscoring their critical importance. AI-related server processors are expected to triple in demand by the end of 2024, providing TSMC with a significant runway for growth. While AI and HPC drive a substantial portion of revenues, TSMC also benefits from strong demand in automotive and IoT applications.
The Zacks Consensus Estimate for 2024 earnings has moved north by 3% to $6.95 per share in the past 30 days. TSM surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.9%. Shares of the company have gained 91.5% in the year-to-date period.
Triumph Group offers a variety of products and services to the aerospace industry. Triumph is capable of producing a wide range of aircraft parts, including hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components, auxiliary power units, and avionics and aircraft instruments.
Rising air traffic benefits the aviation manufacturing sector, thereby boosting growth opportunities for Triumph Group’s commercial business. The company also benefits from its significant involvement in the defense market. Escalating geopolitical tensions around the globe should bolster its military business. Triumph Group has been benefiting from a steady flow of orders from its diverse customer base. Due to its diverse high-quality product offering, the company continues to get orders from commercial airplane producers and various military organizations globally, which enhances its order book and consequently aids its top as well as bottom-line expansion.
The Zacks Consensus Estimate for fiscal 2025 earnings has moved north by 93.8% to 62 cents per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in two of the trailing four quarters while missing twice, the average surprise being 100.48%. Shares of TGI have gained 14.1% in the year-to-date period.
Synchrony Financial, one of the nation’s premier consumer financial services companies, offers a wide range of credit products through a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and health and wellness providers. Synchrony Financial focuses on generating financial flexibility for its customers by offering private label credit cards, Dual Card, and general purpose co-branded credit cards, promotional financing and installment lending, and loyalty programs.
SYF's robust net interest income growth fueled by higher loan balances and stable delinquency rates bodes well for growth. The company’s expanding Health & Wellness platform and strong partnerships, such as those with PSIvet and DICK'S Sporting Goods, enhance its market position. Its focus on customer engagement through tailored financing options and digital innovation strengthens its competitive edge. These make SYF an attractive choice for investors seeking a solid long-term investment in the Financial Miscellaneous Services market.
The Zacks Consensus Estimate for 2024 earnings has moved north by a penny to $6.53 per share in the past 30 days. The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missing once, the average surprise being 4.46%. SYF has gained 77.9% in the year-to-date period.
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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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