5 stocks at 52-week highs

Earlier this week, Ed took an in-depth look at momentum investing as part of his Strategy Map series.

To follow up on this, I thought it would be interesting to revisit the 52-week high screen I wrote about back in May. This screen is continuing to flag up some highly-ranked shares. In this piece I’m going to take a look at five companies that appear in the results and look interesting to me right now.

Screen update

After reading Ed’s piece and looking at my screen, I decided to make a few changes. My aim was to tighten up the screen’s focus on momentum focus and make it a little more selective, reducing the number of results to a more manageable level.

However, the fundamental strategy is still the same – I’m looking for profitable businesses with positive momentum that are trading close to 52-week highs.

Here’s a link to my 52-week highs screen – you can see which stocks qualify for the screen and review and copy the rules for your own use, if that’s useful.

This is a snapshot of the updated screen rules:

One concern I had when I created this screen originally was that it would only highlight shares that already looked expensive. As an investor with a strong bias to quality and value, I thought I might struggle with this.

However, that’s not the way it turned out. Many of the shares appearing in the results of this screen look quite reasonably priced to me.

Let’s take a closer look at some of them.

Marks and Spencer (LON:MKS)

I covered this retail stalwart in a detailed Stock Pitch in March. The shares have risen since then but I remain bullish about this long-running turnaround.

The recent full-year results did not reveal any fresh horrors and showed pre-tax profit up by 21% to £475.7m. Store sales were up by 14.9%, with online up 4.8%, with growth seen in Clothing & Home (+11.5%) in addition to the food business.

Although the Ocado JV is not performing quite as well as might have been hoped, my guess is that this may allow M&S to acquire the remaining part of this business at a lower cost than previously planned.

In March I suggested that after many false starts, Marks & Spencer might finally be on the right path. My view remains positive and I don’t think the shares look expensive, on 11 times earnings with an expected yield of c.3%.

Broker forecasts were upgraded following the results – a positive indicator for momentum.

ME International (LON:MEGP)

ME Group is best known for its Photo.Me booths, but the group now generates nearly a third of its profits from Wash.Me, its self-service laundry business. Alongside this, investment is ongoing in the Print.Me and Feed.Me businesses, which do roughly what you’d expect.

This business is led by longtime director CEO Serge Crasnianski who has built a 36% shareholding in the business. ME Group survived the pandemic without raising cash, thanks to a strong balance sheet. The business has staged a strong recovery since then and operating profit is now comfortably ahead of pre-pandemic levels:

The company has upgraded its market guidance on numerous occasions over the last year, most recently last week:

ME Group is one of several stocks in these screen results that’s a member of my rules-based SIF portfolio. This is a value-momentum strategy involving regular trading that I’ve run here at Stockopedia since 2016.

This stock has been a double bagger for SIF since last year and if I’m honest, I don’t know how much further there is to run. However momentum can be a powerful force and ME Group still passes all of my screening test.

I’m continuing to hold and am reassured by the still-modest valuation of the shares:

This doesn’t look expensive to me for a stock with a MomentumRank of 98 that scores so highly for quality:

Interim results due in mid-July should provide further details and (hopefully) more good news on trading.

Jet2 (LON:JET2)

Anecdotal evidence suggests holiday prices keep rising – and UK travellers are continuing to book. I reckon well-run package holiday and airline group Jet2 could continue to benefit from this trend.

Analysts covering the stock agree. They’ve been steadily ratcheting up forecasts for FY24 since the start of this year.

Jet2’s latest most recent trading update in April confirmed that both capacity and booking levels for Summer ‘23 were running ahead of Summer ‘22.

Although management said it was too early to provide guidance for the year ending March ‘24, “margins per booked passenger” were said to be encouraging, suggesting pricing power and demand remain healthy.

Like ME Group, Jet2 went into the pandemic with a strong balance sheet (and owner management). These things matter during difficult periods, in my experience.

Although Jet2 did carry out a placing to raise cash, this was used to invest for a recovery rather than rescue the business. Profits are expected to be substantially ahead of pre-pandemic levels this year:

Results for the year ended 31 March are due in July. We should get an update on the outlook for FY24 at that point too. In the meantime, I think Jet2 continues to look attractive.

IMI (LON:IMI)

FTSE 250 fluid control engineering group IMI doesn’t get many headlines, but it scores well for quality and appears to be trading well at the moment:

IMI’s most recent update reported strong trading, with organic growth in all three of the group’s divisions. This included a 50% increase in organic order intake in IMI’s Critical business, which serves the oil and gas industry among others.

As a result, management felt able to upgrade earnings guidance for 2023, despite the early stage of the year.

I’m attracted to IMI for its strong quality scores and good cash generation – but also because the shares still look reasonably valued to me on 14 times forecast earnings.

Stockopedia’s MomentumRank of 99 also suggests that technical elements could support further share price progression here.

Cerillion (LON:CER)

This software group is an outstanding achiever that still has significant growth potential, in my view. That’s why I’ve opted to include this £400m firm, despite the shares having a price tag that’s well beyond my normal comfort zone.

Cerillion makes billing and customer management software for telecoms operators. The product is quite sticky and more than 60% of revenue is recurring.

Half-year results showed pre-tax profit up by 52%, while the order backlog rose by 40%. Paul reviewed the numbers in more detail here.

Once again, I think it’s no coincidence that this business is led by owner management, with CEO Louis Hall controlling 30% of the shares.

The valuation is quite steep here, at least by UK standards. In the US, I suspect this valuation would seem less unusual, rightly or wrongly:

However, profit growth has been exceptional in recent years:

And the group’s quality metrics are equally strong:

Broker growth forecasts remain bullish, too, supporting a MomentumRank of 95:

For momentum investors, I think Cerillion remains very much worth considering.

Disclosure: Roland owned shares in ME Group International at the time of publication.