Investors generally consider a stock’s 52-week high a good criterion for an entry or exit point. 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 completely baseless, not all stocks hitting a 52-week high are necessarily overpriced.
Investors may lose out on top gainers in an attempt to avoid the steep prices.
Stocks such as The Hanover Insurance Group THG, ACI Worldwide ACIW, BP BP and Centene CNC are expected to maintain their momentum and keep scaling new highs. More information on a stock is necessary to determine whether 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 this level. But that does not always indicate an impending decline. Factors such as robust sales, surging profit levels, earnings growth prospects and strategic acquisitions, which encouraged investors to bet on these stocks, could keep them motivated if there are no tangible negatives. In other words, the momentum might continue.
Also, when a string of positive developments dominates the market, investors find their underreaction 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 and 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: This 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 : The lower, the better.
P/E using F(1) Estimate : 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:
The Hanover Insurance Group is entering a pivotal near-term phase backed by solid fundamentals and a fresh strategic direction. The company has scheduled a virtual strategic outlook event for Sept. 17, 2026, where management will unveil updated long-term financial targets under incoming CEO Richard Lavey to offer investors meaningful forward clarity.
