Which new 52-week highs should you buy now?
New highs mean strong buying pressure, but don't get caught chasing.
If you're worried about what higher tax rates will do to the market, you're not alone. One thing we can all agree on is that higher taxes are not bullish for the market.
We may not all be ready to agree that the fiscal cliff will come (sooner or later), but when it does, many stocks will feel the pinch. It's all pretty simple really. The government can't spend more than revenue raised forever without monetizing the dollar. For savers, the frustration of watching the government artificially keep interest rates low in a hopeless attempt at mitigating previous failed policies is heart-wrenching
A few companies are bucking the trend and trading near their 52-week highs. Several banks make the list, indicating that financials may offer hope again.
Finding stocks making 52-week highs is easy; finding stocks making 52-week highs likely to continue higher is the real trick. I believe these stocks have a better-than-average chance of continuing higher.
I use a filtering process that includes:
- Minimum trading threshold; eliminating thin stocks that leave so many investors up late at night.
- Year-over-year results that are improving at a relative rate as stock price increases; we want plenty of reason why the stock should continue higher.
- Analyst price targets that are higher than the current price; we want others after us to continue the buying pressure.
- Limited insider selling; because of compensation methods and diversification goals, some insider selling is acceptable, but management should have skin in the game.
- Low short interest; I consider short sellers to be the smart money -- there is no reason to bet against them when we have plenty of stocks to pick from.
Carnival is one of the world's largest multiple-night cruise companies. The company offers a broad range of cruise brands serving the contemporary cruise sector of the vacation market through Carnival Cruise Lines and Costa, the premium cruise sector through Holland America Line and the luxury cruise sector through Cunard Line, Seabourn Cruise Line and Windstar Cruises. Carnival trades an average of 3.3 million shares per day with a market cap of $30 billion.
52-Week High: $39.40
Price to Book: 1.21
Shares are now starting to break-out higher after a considerable consolidation period. With a price-to-earnings multiple above 20, I would wait for a pullback in price before moving forward. The mean price target is $40.85, leaving plenty of room to grow from here.
Cruise lines are floating casinos that, for the most part, don't exploit the revenue from gaming nearly as much as I believe they can. The positive is that Carnival has considerable potential to grow revenue and earnings (especially in gaming). As the cruise industry gains understanding in gaming, profits and dividends should follow. The potential leaves Carnival in a prime position for continued share appreciation.
The short interest is slightly elevated, albeit, not yet enough to make me want to worry about it. As long as it stays less than 4%, I won't give it much thought. Short interest is 3.2%, and if it starts to trend higher I recommend monitoring for a possible exit.
NorthStar Realty Finance (NRF)
NorthStar Realty Finance operates as a real estate investment trust in the U.S., trading an average of 1.7 million shares per day with a market cap of $900 million.
52-Week High: $6.76
Price to Book: 1.34
Shares moved higher 6.3% in the last month, but NorthStar is a relatively volatile stock. Like Carnival Cruise Lines, waiting for a retracement in price is a wise idea. Technically, over the longer term NorthStar appears very strong, but after the current strong run, holding out for an entry below $6.50 will provide greater breathing room.
The current proportion sold short based on the float is 10.5%, and I find this much interest by short sellers worth looking at in more depth. The short interest isn't the only number above 10%. The dividend yield is pushing 10%, convincing short sellers to expect a reduction in dividends, and pushing the share price lower.
Will the short sellers win this one? If you are willing to bet on the Fed maintaining a strong real estate market regardless of the consequences, you have to consider NorthStar Realty.
The Bank of New York Mellon (BK)
Bank of New York is a bank holding company and one of the world's larger financial institutions. They provide comprehensive financial services to individuals, small and mid-sized businesses, multinational corporations, financial institutions, governments and public agencies worldwide. Their products and services are organized into five business lines. Bank Of New York Mellon trades an average of 6 million shares per day with a market cap of $30 billion.
52-Week High: $25.35
Price to Book: 0.82
Shares are modestly higher from a month ago. The price to book says a lot about the market's valuation on this bank. The price-to-earnings multiple is reasonable, and any pullback is a buying opportunity.
The last reported short interest is only 1.6% of the average trading float. Nothing to worry about here, or at least the short sellers are not finding anything to worry about.
Walgreen, together with its subsidiaries, operates a network of drugstores in the U.S. It provides consumer goods and services, pharmacy, and health and wellness services through drugstores, as well as through mail, telephone and online. Walgreen trades an average of 6.5 million shares per day with a market cap of $35 billion.
52-Week High: $37.35
Price to Book: 1.90
In the last month, the stock soared another 10% higher. When it comes to Walgreens, two thoughts come to mind. The first and most important for long term investors is Walgreens is the market leader, and they have pharmacy down to a science. Everyone else is playing catch up. If you're a "road warrior" (travel a lot for business) and regularly take medications, Walgreens is almost mandatory. There is no easier way to get a refill than to use Walgreens in case of lost/empty meds.
The second thought is for those seeking an ideal entry or shorter term investors. Walgreens isn't overbought, so I would not short it, but has a likely chance to retrace some of the recent gains. For the conservative investor, look for a price in the $36 to $36.50 range for entry.
After you enter or increase your position, start enjoying the large 3%-plus yield. The yield will not only improve your portfolio prognosis, but the low payout ratio is the cure.
Presently, based on the float the short interest is unimportant and not a worry. The small amount of short interest is 2.4%.
Citigroup, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries. Citigroup trades an average of 39.2 million shares per day with a market cap of $115 billion.
52-Week High: $38.72
Price to Book: 0.59
Shares increased 3.4% in the last month and more than 4% Monday. The banks have headwinds with regulators and political opportunists. At the same time, the Fed has the real estate market's back and cheap money is here to stay until the overall economy improves. While Citi is making new yearly highs, keep in mind that from a longer term historic point of view, Citi is cheap.
Citi is cheap based on earnings and estimated forward looking earnings. Citi is cheap from a vantage point of assets in the book. You will likely get a chance to enter near or under $39 so don't feel a need to chase this one higher.
The last reported short interest is paltry and without reason to consider it a meaningful influence at only 2% of the average trading float.
Bank of America (BAC)
Bank of America is one of the world's leading financial services companies. Bank of America provides individuals, small businesses and commercial, corporate and institutional clients across the U.S. and around the world. Bank Of America trades an average of 150 million shares per day with a market cap of $119 billion.
52-Week High: $10.71
Price to Book: 0.52
In the last month, the stock has really moved higher with a 11.6% increase. The run Bank of America performed in the last few months is nothing short of incredible. Well, maybe not incredible after discounting the Fed's actions, but impressive none the less.
I traded BAC in the after-hour session on Monday. BAC is somewhat extended, and like several others in this article, I would sit on my hands before entering into a position for a long term hold.
With that said, you want exposure in the banking space. You have the Fed watching your back, and at the point the Fed no longer is holding the floor in place, the overall economy should provide plenty of forward motion.
At the time of publication, the author had recently traded BAC but currently held no position in any of the stocks mentioned.
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