The most important thing I’ve learned watching stocks hit 52-week highs

Tue 15 Aug 23, 11:18am (AEST)
Hot air balloon above high mountain at sunset, filtered background
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Key Points

  • When a growing number of stocks from a particular sector make 52-week highs, it can be a sign of a group advance
  • This has been happening in the insurance, travel, and building materials sectors in recent months

A fresh 52-week high can be a big deal for stocks – reflecting strong investor sentiment and bullish expectations for the company’s future. But there’s another dimension you can add to a 52-week high scan to help narrow down market leaders and those that have the momentum to keep making fresh highs.

That being: A growing number of stocks from a particular sector making 52-week highs.

Why a group advance matters

I started tracking 52-week highs on a weekly basis at the beginning of the year. You can read the first edition here. (They're generally a bit of a data dump with some analysis)

At the time, insurance was the first sector to experience a uniform move into 52-week highs. Around late January, stocks including QBE (ASX: QBE), Suncorp (ASX: SUN) and IAG (ASX: IAG) were all breaking out of recent trading ranges.

Insurance 52-week highs
QBE (Blue), Suncorp (Yellow) and IAG (Red) – Yellow band reflects when the stocks started to break out to 52-week highs (Source: TradingView)

From a fundamental perspective, insurance is a sector that’s leveraged to rising rates as it can earn higher returns on fixed income portfolios and flex its pricing power by raising premiums (at a rate that far outpaces inflation).

Suncorp's FY23 results demonstrates this leverage, with the underlying yield on its insurance funds jumping from 1.59% to 5.13%. 

Suncorp yield returns
Source: Suncorp FY23 results

Travel is another sector that’s been running hot, led by names like Webjet (ASX: WEB), Helloworld (ASX: HLO) and Flight Centre (ASX: FLT).

Travel 52-week highs
Helloworld (Red), Flight Centre (Red) and Webjet (Blue). Yellow band reflects when the stocks started to break out to 52-week highs (Source: TradingView)

While travel stocks have yet to report FY23 results, there’s been no shortage of upbeat commentary from major travel companies including:

  • Airbnb (NASDAQ: ABNB): "During Q2 2023, we had 115.1m Nights and Experiences Booked — our highest second quarter ever. While we saw strong growth across all regions compared to Q2 2022, Asia Pacific once again saw the strongest growth."

  • (NASDAQ: BKNG): "In Q2 we continued to see robust leisure travel demand … We have seen these strong trends continue into July, and we are currently preparing for what we expect to be a record summer travel season in Q3."

  • Expedia (NASDAQ: EXPE): "Q2 saw travel demand remain strong... we continued to repurchase our stock opportunistically & have purchased a record $1.2bn year-to-date."

  • Raytheon Technologies (NASDAQ: RTX): “"Global commercial air traffic remains on track with our projections with a very robust summer travel season, driven by incredibly strong consumer demand.”

By late May, building materials was another sector that started to out in tandem, including James Hardie (ASX: JHX), CSR (ASX: CSR) and Boral (ASX: BLD). 

Building Materials 52-week highs
James Hardie (Blue), CSR (Green) and Boral (Blue) – Yellow band reflects when the stocks started to break out to 52-week highs (Source: TradingView)

Come August reporting season and these companies are smashing earnings expectations.

James Hardie's first quarter net profit of US$157.8 million was 20% of Goldman Sachs estimates alongside better-than-expected margins and solid volumes. The stock rallied 14.4% on the day of the result (8 August).

The Bottom Line

US trader Mark Minervini argues in his book Trade like a Stock Market Wizard that a group advance may be underway when a growing number of stocks in a particular industry reach new 52-week highs, especially coming off a market low. And that's been the case for the three sectors mentioned above, backed by fundamental headwinds such as rising rates, tenacious travel demand and a building boom.

A stock making a 52-week high in isolation might not mean much but it pays to watch which sectors or sub-sectors they're coming from.

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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