Make the Trend Your Friend: 5 Momentum Stocks Near 52-Week Highs

Uncertainty has been shrouding the stock market for quite some time now with no sign of abatement. All efforts toward guessing the next turn of events in this capricious market have been futile so far. But, as the saying goes, "the only certainty is that nothing is certain."

Thus, instead of losing sleep over the uncertainties plaguing the market at the moment and making desperate attempts at gauging the direction, investors would do well by working out strategies that might help minimize losses and also book profits.

One such strategy would be buying the high-fliers i.e. stocks that are soaring to 52-week highs by riding the wave of momentum as they seek to capitalize on market volatility.

The Momentum Anomaly

The Momentum Anomaly theory basically states that what has been going up so far will possibly continue to do so in the impending future.

Momentum investors thus strongly believe in the "trend is your friend" saying which implies that stocks that are working will continue to work. They make short-term choices of stocks that are scaling up and tend to sell them as soon as they show signs of a downtrend. The basic idea that prevails among momentum investors is that once a trend is recognized, it is more likely to retain that direction and not move against the flow.

Thus, gambling on momentum stocks might help investors to earn high returns by cashing in on the latest fad and benefiting from it over the short term.

Are Stocks Near 52-Week Highs Safe Bets?

As a company's shares are about to bump up to its highest point in a year, investors may steer clear, thinking there is not much upside left – which is true in certain cases. However, a high flying share does not essentially mean that it's not a good bargain at present.

Isaac Newton had put it rightly, "a body in motion tends to stay in motion." Even, technical analysis endorses this theory of buying strength and selling weakness. Hence, if a stock is close to its 52-week high, it means that it has strong relative strength compared to others and the stock is ready for strong and sustainable upside.

Thus, seeking stocks with share prices that have been on the rise would make a wise choice for investors.

Buy High, Sell Higher

In this era of fast-developing markets, quick money making and high volume trading, it is imperative for investors to break through conventional strategies and watch out for opportunities to add that extra sheen to their portfolios.

Thus, it is time for investors to distance themselves from the tried and tested adage of "buy low, sell high." Instead of buying companies at low valuations and waiting for a turnaround, the more apt move is to pick stocks that are experiencing phenomenal momentum and buy high but sell even higher!

The rise in share prices is a clear indication that investors are willing to pay premium on expectations that the stocks will scale even higher in the future.

The Zacks Style Score

Though momentum can be an important contributor to portfolio returns, it is essential to avoid fads blindly. Thus, the most vital question that looms is: When to take the plunge?

It is here that our new style score system can come in handy. The Zacks Momentum Style Score indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. Back-tested results show that stocks with Style Scores of ‘A' or ‘B,' when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) handily outperform other stocks.

5 High-Flying Stocks Set to Touch 52-Week Highs

We zero in on five stocks based on the following credentials: a solid Zacks Rank, an equally attractive Momentum Style Score and current price as a percentage of 52-week high-low range over 90 (a value of 100 indicates that the stock is trading at its 52-week high).

These stocks have been trending up over the recent past, presently trading near their 52-week highs and still appear to have plenty of upside left.

EZchip Semiconductor Ltd. EZCH is a fabless semiconductor company that provides Ethernet network processors for networking equipment. Recently, shares of the company received a huge boost when Israeli chipmaker Mellanox Technologies declared that it is set to acquire it.

Over the last four quarters, this Zacks Rank #1 company with a solid Momentum Score of ‘A', posted an average positive earnings surprise of 122.03%. The company's stock price has climbed nearly 31% year-to-date. Currently trading at $25.04, the stock is poised to beat its 52-week high of $25.21 recorded last month.

SS&C Technologies Holdings, Inc. SSNC delivers investment and financial management software and related services exclusively to the financial services industry. The company provides a broad range of specialized software, software enabled-services and software as a service (SaaS) solutions for operational excellence. Notably, the company sports a Zacks Rank #1 and a solid Momentum Score of ‘A'.

Over the last four quarters, SS&C Technologies recorded an average positive earnings surprise of 2.14%. Currently trading at $71.90, this stock has gained nearly 23%, year-to-date, and is on track to surpass its 52-week high of $75.50 that was reached in mid-August this year.

Global pure-play online and console game publisher Activision Blizzard, Inc. ATVI boasts leading market positions across all categories of the rapidly growing interactive entertainment software industry. A strong product portfolio lends Activision an edge over its peers. The company also boasts a solid Zacks Rank #1 and an equally impressive Momentum Score of ‘B.'

It is worth noting that in the last four quarters, the company posted an average positive earnings surprise of 151.53%. Further, the company's stock price has been charting upward and has rallied over 57%, year-to-date. Currently trading at $31.73, the stock looks well positioned to trump its 52-week high of $32.50, recorded just last month.

Matson, Inc. MATX operates as an ocean transportation and logistics company. The company anticipates modest market growth in the remainder of this year. The company's Zacks Rank #2 and a Momentum Score of ‘A' raises optimism.

Notably, the company has been topping earnings expectations in the last four quarters, the average being 9.48%. This stock risen over 25% year-to-date, and at $43.30, it is close to steer ahead of its 52-week high of $43.84 that was scaled in early May.

Flaunting a Zacks Rank #2 and an encouraging Momentum Score of ‘A,' Ixia XXIA is a leading provider of performance test systems for IP-based infrastructure and services. The company strives to be the world's leading provider of solutions to enable testing of next generation IP Triple Play networks.

Moreover, the company has been beating earnings estimates of late, with the average beat in the last four quarters being a substantial 249.17%. Currently trading at $14.85 a share, the stock has seen an impressive 32% rise year-to-date. The stock looks set to outshine its 52-week high of $16.05 that was attained in August.

It's All About Timing

The market volatility symbolizes waves in the ocean and the challenge for the momentum investor is to sail on the crest of one wave and jump onto the next before it crashes. Simply put, momentum investing can be profitable but timing is of utmost importance here i.e. when to enter or exit the space.

However, please keep in mind that this is a purely speculative strategy and is strictly not meant for the weak-hearted. So, if you are willing to take that risk to earn that extra return for your portfolio, you can sure take a ride with these stock market's high fliers.

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