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

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 QBE, Suncorp SUN and IAG IAG were all breaking out of recent trading ranges.

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%. 

Source: Suncorp FY23 results

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

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 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."

• Booking.com 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 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 JHX, CSR (ASX: CSR) and Boral (ASX: BLD). 

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.