Searching for new 52 Week Highs amongst Value Stocks

Despite the market volatility of recent months, the FTSE is up by around 11% so far this year, helping to propel a handful of shares towards their 52-week highs. Financial newspapers and websites the world over regularly publish lists of shares that are hitting their one-year highs and lows, but these nuggets of information are much more useful than they may at first seem.

In momentum circles it’s widely thought that investors in companies trading close to their 52-week highs will use that price as a reference point to judge the significance of any news from these companies. Even on good news, they can be reluctant to bid up the price even further because of this so-called ‘anchoring’ effect. But eventually the full impact of the news can’t be denied by the market and the share price rises anyway – and it’s here that momentum investors can profit. These findings were central to a study by George and Hwang, who found that buying stocks that were at a 52-week high was a highly profitable strategy.

Stockopedia’s 52 Week High Momentum Screen has produced an impressive 31.9% return over the past year, beating the FTSE benchmark by 15.6%. It’s performance has been driven by gains at the likes of mother and baby products retailer Mothercare (LON:MTC) and housebuilder M J Gleeson (LON:GLE) .

In a twist on conventional momentum strategies however, research has also found that by combining momentum with value screening, investors can profit even more by taking advantage of the negative correlation between the two – ie. when one component does well the other may not. So to try and find a happy balance of 52-week highs that still rank strongly in the market as potential value opportunities, we had a look at the stocks meeting both criteria in the UK and Europe.

By its nature, the 52-Week High screen is highly sensitive and can see regular changes to the list of qualifying shares. Nevertheless, as of last Friday, among the UK quoted companies on the screen was insurance brokerage Brightside (LON:BRT), which has seen its shares rise by nearly 15% to 27p since the start of July. With a Stockopedia ValueRank of 84 (meaning that it’s ranked higher than 84% of companies in the market based on a composite of several value ratios), Brightside appears relatively cheap despite recent price momentum. In 2012, the company produced its tenth successive year of improved financial results, with revenues up 13.4% to £91.2 million and pre-tax profits up 28.7% to £17.5 million. A maiden dividend last year has been followed with an increase this year, with the forward yield standing at a modest 2.5%.

Elsewhere, shares in Pendragon (LON:PDG), the car retailer, have been on a strong run in 2013, rising from 17.5p to 26.25p so far. Even so, it still achieves a ValueRank of 89. Pendragon’s latest results indicate that the market for new and used cars is recovering, with last year’s pre-tax profits rising by 18% to £36.4 million. A strong first quarter, reported in May, came as brokers upgraded their EPS expectations for the year.

Another UK stock of possible interest is support services company Mears (LON:MER), which has seen its shares rise by 42% to 393.5p over the past year, earning it a Value Rank of 76. The company delivered a record breaking financial performance in 2012, helped by the acquisition of its main rival, Morrison. It recently issued an upbeat trading statement, saying it had already achieved 95% visibility of the £915m consensus revenue forecast for 2013 and 80% visibility of the £960m consensus revenue forecast for 2014.

Looking to the European 52 Week High list, Polish construction company Budimex (BDX) has seen its shares rise by 37% to PLN 96.3 in 2013, which will please infrastructure giant Ferrovial because it holds a 59% stake in the company. After rapid growth in Poland’s construction industry in 2011, a slowdown hit the market in 2012 and Budimex saw net profits fall by 28% to PLN 186 million (c.£37 million) as a result. With expectations that the downturn will continue in 2013 and 2014 likely to be acting as a drag on the company’s valuation over the medium term, it earns a Value Rank of 81.

Finally, shares in German vehicle rental business Sixt (SIX2) have been drifting higher during the spring and early summer despite a 19% fall in net profits last year to €79.2 million. Despite tough market conditions the company has been pressing ahead with expansion plans, particularly in the US. In terms of fundamentals, its forward dividend yield of 4.8%, a full nine points on the Piotroski F-Score of financial health and a Value Rank of 94, all make this a potentially interesting prospect.

Blending momentum and value

While 52-week highs have been proved to be an effective pointer to shares with the potential to outperform, many of the current crop of stocks lack value attraction to investors… but not all of them. Using Stockopedia’s list view in the UK and Europe 52 Week High screens it’s possible to get a look at which of these high price achievers are still ranking well as potential value opportunities.

To screen UK and European markets for companies reaching their 52-week highs using Stockopedia’s screening tools, why not take a free trial?

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