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Share price at 52-week high and low



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We know that the company share price move up and down every minute, every hour, every day, every month and so on.

Check the Current Market Price of the stock and compare it with its 52-week high and low.

A company trading at its 52-week high should be justified as to why it is trading at such a high levels.

If the reason is not easily found or not convincing enough, refrain from investing in the stock no matter how attractive other factors look like.

A chance of a share falling down from its 52-week will generally more than its further upside if the growth is not supported by due funadamentals.

A buy at such high levels will mean that we might be buying the company at an all time highs.

A share price fall from this level is like falling down from a 52-storey building!

And we know how we will get hurt if we jump!

This is more important for a positional investor than one who invests in SIP method at regular intervals, such once a month.

This is because, an investor who does cost averaging will always be averaging his investment with every SIP transaction.

In general such companies might not be having Attractive or Very Attractive valuations at which we generally prefer when investing in companies.

Finding 52-week highs and lows

Where to find 52-week high companies?

http://www.moneycontrol.com/stocks/marketstats/nsehigh/

In other words, we can treat this rule in a different way:

If all other factors are good for a company, a 52-week low share would be a good one to invest in.

However, you should be extra cautious and find out the exact reasons as to why the share price has hit 52-week low in the first place.

Otherwise, there is a chance that the stock can further hit fresh 52-week lows.

A fall form 52-week lows could be justified with company and sectoral trends.

Where to find 52-week low companies?

http://www.moneycontrol.com/stocks/marketstats/nselow/

In general, we would find few good companies available at exciting valuations at 52-week lows.

Example

What is common amongst all these companies?

  1. Tata Elxsi
  2. Hexaware
  3. Tech Mahindra
  4. Kellton Tech

It will be an easy guess that all of them are IT Service companies.

More than that, all the companies are trading at their 52-week low.

Clearly IT stocks are under pressure and we have already seen Infosys and TCS having downgraded their earnings forecast.

Ruppee pressure will add more pain. This means, the companies will be in pressure for atleast another 2 quarters for sure.

If you are a long term investor with a 3+ year view and have a risk taking appetite, IT would be a great sector to start investing.

And won't it be nice to buy a good management IT company when its share price is at 52-week low?

How about investing slowly using cost averaging method / SIP?

Rule #19: Avoid investing in a share whose CMP is close to 52-week high. Consider investing at 52-week low if the company is fundamentally good.

Understand why the stock is trading at 52-week high/low.

CMP at 52-week low does not always mean the stock price fell.

You need to find out if there was a corporate action in the stock during the past one year.

For instance, a stock split, bonus share, reverse split etc. might change the CMP of the stock.

Hence, some stocks artificially are shown to be close to 52-week high / low.

Investing at 52-week high contradicts our rules because ...

.. such stocks would correct the most when markets go down..

.. And when Nifty PE is at highs, it would bring more panic for the investor.

This rule is more of a precautionary measure than an alert.

We need to understand why the company is making 52-week highs.

For example, in regard to PNB Gilts, the stock went up quickly in recent times (Nov 2016).

The stock is traditionally not a high-beta at a mere 1.03.

Then why did it make new highs and move up so fast?

This is because of increased business..

In September 2016, PSU banks buy record sovereign bonds after Army's surgical strikes on Pakistan terror base

http://economictimes.indiatimes.com/markets/stocks/news/psu-banks-buy-record-sovereign-bonds-after-armys-surgical-strikes-on-pakistan-terror-base/articleshow/54599312.cms

Conclusion

There should be strong fundamental backing for a stock to make and stay at 52-week high levels.

Assignment

  • From the list of your invested stocks, find stocks that are close to 52-week high / low
  • Get a list of 10 companies that are at their 52-week lows and find out the reasons why the are at such lows.
  • Identify the sectors from the above list. Do see some sectors that are at their lows at the moment?

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