6 Strong Buys Breaking Near 52-Week Highs
NEW YORK ( TheStreet) -- Within investing success lies a fine line between buying overbought shares and catching the next move higher.
Get it wrong and you can watch an entire year's gains (or more) go right down the drain. Get it right and not only do you reap the monetary rewards, but don't be surprised when your neighbor stops by for the second time in a week asking about investments.
I am like a hedge fund; I will short a stock just as easily as I buy one. That means I look for stocks that are trading higher and are overextended. I've found in this process of screening that many stocks that are trading higher, but that are not overextended, continue higher, offering an opportunity to buy.
Interestingly, stocks often make the biggest and most powerful gains at the end of a move. This common market reaction provides a strong incentive to find trending companies, even when prices appear "too high".
I have spent countless hours studying data on companies that are able to reach new trading levels and those that fail to continue higher.
While I haven't found a Magic 8 Ball that works, I have found that stocks with certain characteristics tend to have higher performance ability than others. The result is a narrow selection that is near or creating 52-week highs, and have the most favorable investor risk-to-reward ratio. NWL data by YCharts
Newell Rubbermaid (NWL)
Background: Newell Rubbermaid designs, manufactures, and markets consumer and commercial products worldwide. It offers its products through a portfolio of brands, including Rubbermaid, Sharpie, Graco, Calphalon, Irwin, Lenox, Levolor, Paper Mate, Dymo, Waterman, Parker, Goody, Rubbermaid Commercial Products and Aprica. Founded in 1903, it is headquartered in Atlanta. Newell Rubbermaid trades an average of 2.6 million shares per day with a market cap of $5.66 billion.
52-Week High: $19.74
Rubbermaid is once again pressing against the lid of the recently expanded 52-week high. Rubbermaid appears sealed tight with an incredibly high trailing price-to-earnings ratio exceeding 60.
Don't let the trailing P/E fool you, though. Sometimes looking at previous financial results is comparable with driving your vehicle using the rearview mirror. Based on analysts' earnings projections, the P/E is receding down to a 10, a premium convincingly within conservative acquisition metrics.
Rubbermaid pays a reasonably attractive 2.1% dividend yield based on 40 cents a share per year. The forward payout ratio is less than 30% based on current year estimates. Anything under 50% is considered reasonably safe absent an underlying concern.
I like the chart pattern. The chart shows a stock in a bullish pattern and one that is breaking out with durability. After the recent retracement, Rubbermaid's renewed approach of the September highs is typical of a stock that is about to break higher. TWX data by YCharts