Chasing momentum: 6 stocks hitting 52-week highs

Buying stocks that are making new highs is incredibly difficult for many investors. I know it is for me. Ed recently looked at this topic in more depth in a series of articles on trend clarity, concluding with two recent pieces highlighting trending small cap and mid cap stocks.

As a value investor by nature, I want to believe that stocks making new highs are too expensive and thus likely to fall. I’m looking for an excuse not to buy!

But the reality is that there’s plenty of academic evidence to show that share price momentum can be a powerful and durable trend, especially when it’s supported by solid fundamentals and rising profits.

This week I want to revisit my 52-week high screen, which I last covered here in June 2023. This screen was designed to help me overcome my inbuilt bias against stocks making new highs by including some quality and valuation measures designed to highlight decent businesses at reasonable prices.

52-week high screen

I have to confess I had not looked at this screen for a while, prior to writing this article. But a quick look at the results suggests I should check this screen more often. The screen’s current results include a number of strong recent performers. including a number of shares currently in my Stock in Focus portfolio.

As a quick reminder, this screen uses a handful of fairly simple rules to look for profitable companies with strong momentum and solid fundamentals.

You can view the current screen results here and make your own copy of the screen if you wish.

In the remainder of this piece, I’m going to take a closer look at three of the stocks that interest me in the screen results and highlight three more 52-week high stocks we’ve covered elsewhere on the site recently.

B.P. Marsh & Partners (LON:BPM)

This small-cap investment firm is a specialist investor in early-stage insurance businesses. Graham highlighted the appeal of this business in a recent Daily Stock Market Report:

they invest in a niche which we can’t easily access, and they do it well

BP Marsh may not seem like an obvious momentum play, but the share price has said otherwise in recent years:

A track record of successful investments and realisations mean that this share price progress has been mirrored by growth in both profits and net asset value per share:

As a result, the company’s valuation today is still only marginally above its last-reported book value of 690.8p per share (31 July 24).

Admittedly, the shares have sometimes traded at a discount to NAV previously. While I’d prefer to buy at a discount, I can’t ignore the company’s improving profitability. Return on equity has risen from under 10% in 2020 to 23.5% over the last 12 months.

If returns can be maintained at this level, then I’d argue that the stock probably deserves to trade at a modest premium to its equity or book value.

Looked at differently, the current valuation on 13 times forecast earnings does not seem excessive to me. This is especially true as BP Marsh has no debt and reported available liquidity (essentially net cash) of £80m at the end of July 2024. That’s nearly a quarter of the current market cap.

Stockopedia’s algorithms award BP Marsh a StockRank of 99 and Super Stock style, driven by very high quality and momentum scores:

I can’t argue with the picture painted by these scores, and feel positive about the outlook and valuation here.

Quilter (LON:QLT)

Fund managers have struggled to attract new money from UK investors in recent years. But this has not been true for the big adviser platforms, which have seen strong inflows. This may suggest that advisers have been allocating client assets elsewhere. Into the US market, perhaps?

Quilter is the UK’s largest adviser platform. It saw net inflows of £1.4bn during the third quarter, lifting assets under management and administration (AuMA) to £116bn at the end of September (June 24: £110.6bn).

This year’s strong trading saw adjusted pre-tax profit for the first half of this year rise by 28% to £97m. An adjusted operating margin of 29% (H1 23: 24%) demonstrates strong profitability, despite ongoing pressure from lower fee margins.

Quilter’s positive trading has been reflected in repeated broker upgrades over the last 12 months:

The shares have also performed well, doubling, returning to levels last seen in late 2021:

The StockRanks continue to see strong momentum and value on offer here...

… despite somewhat average valuation metrics when compared with the wider market and sector:

I’m inclined to remain positive. Quilter is the market leader and offers a dedicated high net worth service in addition to its adviser platform, which targets the slightly less wealthy “affluent” segment.

My guess is that the company’s scale and brand leave it well positioned to benefit from the border shift towards individual management of retirement assets. Meanwhile, the valuation doesn’t seem excessive to me, if recent performance can be maintained.

One point worth making is that Quilter’s share price is now trading in line with analysts’ price target of 145p.

I can’t rule out the possibility that Quilter’s share price is now up with events. But I suspect a more likely explanation is the tendency for broker forecasts to lag performance at growing companies. One year ago, analysts’ price target for the stock was just 106p.

Yu (LON:YU.)

This energy supplier and smart meter operator is a current holding in the SIF model portfolio, and in my mirroring personal portfolio. It scores very high with the StockRanks at the moment, earning Super Stock styling.

The failure of many small domestic energy suppliers in recent years left me somewhat wary about this sector. But Yu only serves business clients and appears to have a more robust business model.

One attraction here for me is the large shareholding of founder and chief executive Bobby Kalar:

I suspect some readers may worry about Kalar’s outside influence over the business, given his controlling shareholding. Personally, I see this as a minor concern, comfortably outweighed by the appeal of investing alongside a company’s founder.

Growth has certainly been impressive here, in my view. In its recent half-year results, Yu reported 60% revenue growth for the first half of the year, with earnings per share up by 52% to 88p.

However, while H2 earnings are expected to exceed those in H1, the growth rate will be much lower. The company says that milder weather affected energy consumption earlier this year, reducing demand.

Full-year forecasts for earnings of 192p per share suggest growth versus FY23 will be around 6% – respectable, but not spectacular.

While the company won’t always be able to control exact demand patterns, I think Yu is doing well at controlling the things it can control. The business signed a new five-year hedging agreement with Shell earlier this year, providing “efficient and cost-effective access to gas, electricity and green markets”.

Meanwhile, the customer base has continued to expand, with the volume of energy supplied rising by 110% in H1.

For me, one key attraction here is the capital-light business model. This has the potential to support excellent shareholder returns, in my view:

Perhaps the main concern for me is the risk that bad debt levels will be higher than forecast. Impairment charges on receivables totalled £14.8m last year. Even a relatively small increase could have a material impact given that annual profits are in the mid-£30m range.

The company believes that growing use of smart meters and careful credit checking mean that bad debt performance is manageable and may improve. Certainly, greater use of smart meters should provide more accurate and timely visibility on customers’ credit performance.

Broker forecasts have remained positive this year and been upgraded on a number of occasions:

The shares have also performed well:

Despite this, the stock’s forward valuation does not look demanding to me for this level of growth.

If Yu Group can maintain its record of growth and profitability, I wonder whether it could eventually justify a rating more in line with FTSE 250 utility reseller Telecom Plus (LON:TEP), which routinely trades on a mid-teens P/E multiple.

3 bonus ideas!

I thought I’d wrap up this piece by highlighting three more stocks that appear in my 52-week high screening results, but which we’ve covered too recently here to warrant revisiting.

Eurocell (LON:ECEL) - I wrote about this window business when I revised the construction materials sector in September. Eurocell’s share price has risen since then but the stock continues to look potentially attractive, in my view.

M P Evans (LON:MPE) - this AIM-listed palm oil producer appeared in the Best Dividends guru screen in September. I wrote about it here.

Jet2 (LON:JET2) - Megan reviewed the airline and holiday operator’s latest results in the Daily Stock Market Report last week. Her conclusion was that this well-run business still looks affordable and could have more to offer.

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