52-week highs: ASX insurance, tech and mid-cap lithium stocks are rallying to yearly highs

Welcome back to the 52-week High Series, where we review the performance of listed companies hitting yearly highs and consider why they’re worth watching

You can check out Market Index’s 52-week high scan here - which shows users which companies are clearing yearly highs on the given day.

To recap why the 52-week high is an interesting price point:

• The research: A thesis by Thomas J George found that the closer a stock is to its 52-week high, the stronger it performs in the subsequent period

• The fundie: 1851 Capital CIO Chris Stott says his fund 'follows the data religiously' to help identify momentum and generate fresh ideas

• The trader: US trader Mark Minervini says when you see a growing number of stocks in a particular industry making 52-week highs, this could be "an indication that a group advance is underway"

Today, we’re grouping the stocks (those with market caps exceeding $150 million) by sectors.

Materials: Building Stocks + Emerging Lithium

James Hardie and Brickworks are among several ASX-listed building and construction stocks that have held up relatively well in 2023. A Macquarie note from last week observed a few interesting takeaways about US construction conditions:

• “Momentum has turned positive in the new construction market, aided by low existing home resale volumes and builder incentives.”

• “Still macro complexities ahead, but valuation, stabilising market conditions, execution and falling costs are supportive.”

• Macquarie was Outperform rated on James Hardie with a $44.50 target price

James Hardie 12-month price chart (Source: Market Index)

When the lithium sector bottomed in late 2021, small-cap explorers led to the upside, many of which rallied a few hundred percent with ease. 

When the market started to plateau and pick up again in September 2022, large-caps such as Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE) found a lot of traction.

More recently, we’re seeing a new breed of mid-cap explorers rise to the occasion. What do they have in common? They’ve all had some very strong news flow in the past few weeks and have frequently topped our weekly Big Drill Hits series. This is a curated list of the most intriguing intersections made by ASX-listed explorers, as shown here in our latest edition.

Discretionary: Nothing much to see

Nothing too exciting is happening in the Discretionary space. Aristocrat Leisure briefly broke out of its 16-month trading range last week. This was followed by a five-day losing streak that snapped the stock back to the $37 level.

Aristocrat 12-month price chart (Source: Market Index)

Staples: Lots of love for Woolies

The Staples sector has received a lot of love from brokers in recent weeks. More broadly speaking, most analysts are Buy-rated on Woolworths and peers, and express a preference for Staples over Discretionary stocks. Here are some key points from Macquarie’s ‘Australian Consumer Sector’ note from earlier this week:

• “Series of profit warnings from Australian consumer stocks point to a significant shift in behaviour over past two months.”

• “We see significant headwinds building for consumers over the back half of calendar 2023.”

• “Consensus expectations for margins appear to be reasonable for the Consumer staples names. WOW, COL and MTS have broadly flat margin expectations over the next three years.”

• “In this environment we prefer consumer staples (COL and EDV) over consumer discretionary (JBH and HVN).”

Woolworths 12-month price chart (Source: Market Index)

Financials: Are you insured?

More broadly speaking, insurance stocks such as QBE, Suncorp, IAG as well as brokers including Steadfast and AUB Group have been making regular 52-week highs since the beginning of the year.

In summary, insurance stocks are leveraged to the rising rate environment. That’s because, in such periods, they can earn higher returns on their fixed income portfolios, which are used to pay insurance claims. QBE’s first quarter FY23 trading update observed a group wide rate increase of 10% against the prior period and strong volume trends. 

QBE Insurance 12-month price chart (Source: Market Index)

Healthcare: Two Trending Large Caps

Pro Medicus 12-month price chart (Source: Market Index)

Telix Pharmaceuticals 12-month price chart (Source: Market Index)

Defensives 

Technology

Large-cap tech names staged a broad-based advance in-line with the outperformance of mega cap US tech stocks and AI hype.

The S&P/ASX 200 Info Tech Index rallied as much as 17% between 16 May and 21 June. It has since experienced a shallow 6% pullback so it’ll be interesting to see if this rally has more legs to it. 

S&P/ASX 200 Info Tech Index 12-month price chart (Source: Market Index)