National Post (National Edition)
How to read top stocks for clues.
One of the best investment strategies (at least for me) over the past 25 years is to find ideas by perusing the new high lists each day. A new high means someone, somewhere, has just paid a brand new level for a stock, one that has not been seen before. Thus, you know at least one investor believes something great is going on at the company and is willing to pay up in order to participate.
Like everything in the market, there is no guarantee, but at least this can generate some new ideas, and you know that you have some friends buying with you.
Companies hitting new highs these days might really have something going for them, given the fears of China crashing and, of course, the never-ending Greek saga.
Indeed, the new high list gets shorter and shorter every day because the markets have generally been weaker of late. Let’s take a look at five companies whose shares have hit new highs in the past week. For shares to do well in this environment, maybe something really good is going on at these five companies.
AirBoss of America Corp. (BOS/TSX)
We recently started covering this company, which manufactures and sells rubber-based products for a wide variety of customers, including the military, and its shares are up 99.5 per cent this year.
It is not cheap at 23x earnings, but good growth is expected and insiders own 27 per cent of the company. Earnings per share increased by 27 per cent in the first quarter.
Why is its stock up? Its June acquisition of Immediate Response Technologies LLC looks good, its business (especially military orders) may not be too impacted by a recession, and it is simply getting more attention. Its balance sheet is also fine, it has been profitable every year since 2003 and it has paid dividends since 2007.
Anacor Pharmaceuticals Inc. (ANAC/Nasdaq)
Anacor on Monday announced strong Phase III results for its Dermatitis drug trial, and the stock surged. It is now up more than 351 per cent in 2015, and many are saying its treatment is “best in class.” Many are also calling the company a prime takeover candidate. Its one-year gain: 778.9 per cent.
Certainly, the sector is fraught with risks, but the biggest risk — that of a failed Phase III trial — is now out of the way. Watch for plenty of earnings and ratings upgrades on this one over the next few weeks.
Prism Medical Inc. (PM/TSXV)
Prism makes and sells medical products required by the mobility challenged. Of course, it has demographics in its favour, as well as a four-per-cent dividend that has grown nicely over the past five years. The company also paid a special dividend of $1 per share this year.
In addition to decent earnings and the sale of a division, the stock has done well (up 44.5 per cent this year and 73.2 per cent in 52 weeks) largely because Prism keeps buying back stock.
It did a large auction in 2014 to cancel 4.3 million shares and the number of shares is now nearly half what it was several years ago. Insiders own 25 per cent and it continued to hit new highs during the Greek crisis.
CCL Industries Inc. (CCL.B/TSX)
CCL, which makes specialty-packaging products for consumer products companies, is up 33.5 per cent this year and 54.5 per cent over the past 52 weeks. It pays a dividend of 0.9 per cent after being increased in February and it handily beat revenue and earnings estimates in the last quarter.
It is also not cheap at 21x earnings, but investors simply like the stability of its business and its recently increased earnings growth rate. It is a large company (its market cap is near $6 billion) and there has likely been a lot of funds flowing into the stock from investors selling large oil stocks and weak-performers such as Bombardier Inc.
Hardwoods Distribution Inc. (HWD/TSX)
Hardwoods wholesales lumber, plywood and related products, operating distribution centres throughout North America. At 15x earnings, its stock is up 54.4 per cent this year and 60.3 per cent over 52 weeks. It recently hit a series of new highs, but things really started to take off in May when it boosted its dividend by 22 per cent.
In addition to the dividend, its sales jumped 34 per cent in the first quarter, and earnings rose 59 per cent. A fairly small company, with a $250-million market cap, investors see it as a leveraged call on the U.S. housing market recovery. It is likely also considered a takeover target for the sector.
As mentioned above, a new high does not guarantee continued success. Most investors, however, will certainly affirm that they are way more fun than new lows.