I recently shared a screen to use to find potential bargain buys among stocks trading at 52-week lows. This week I want to flip this idea on its head and look for shares trading close to their 52-week highs that may offer buying opportunities.
Bargain hunting among big fallers may feel more comfortable for investors who like to focus on value. I know it does for me.
But there’s plenty of evidence to suggest that buying shares that are trading close to 52-week highs can be a very successful strategy.
It’s worth noting that buying such stocks doesn’t necessarily mean buying expensive shares. As you’ll see in the results of this screen, there seem to be plenty of reasonably-priced stocks with rising share prices.
The idea of buying shares close to 52-week highs is also supported by academic research. Apparently, investors tend to be reluctant to buy shares when they’re close to 52-week highs. This can lead to a situation where companies are delivering positive results and the market is undervaluing them.
At some point, the dam breaks and new buying will often support further share price gains, potentially leading to new 52-week highs.
My experience as an investor has certainly confirmed my belief that momentum is a powerful force -- often far more so than I've expected. To help me overcome my bias against chasing stocks higher, I’ve designed a new screen to try and identify good companies with rising share prices that could be attractive investments.
As always, the results of this screen are intended to be a starting point for further research, not a list of stocks to buy.
Being too restrictive runs the risk of ruling out many good opportunities, so I’ve left some criteria deliberately ‘loose’, in order to try and provide a decent range of choices.
Building the screen
As a starting point, I copied the 52-week low screen I created recently (available here) and inverted it.
This gave me the following criteria:
Price vs 52w high > -10%
Index memberships: FTSE 100, 250, SmallCap, Fledgling and AIM All Share
Market cap > £20m
StockRank > 60
This generated 128 results. That’s too many for my purposes, so I decided to add some further criteria.
Momentum: my next…
