Go to the Globe and Mail homepage

Jump to main navigationJump to main content

(photos.com)
(photos.com)

Number Cruncher

The soaring potential of already pricey stocks Add to ...

What are we looking for?

A test of most people’s instinctive aversion to buying stocks that have already soared in price.

More about today’s screen

Craig McGee, senior consultant at CPMS Morningstar Canada, created today’s offering.

He began by calculating how an investor would have fared since 1985 if she had made a regular habit of purchasing the 30 stocks on the Toronto Stock Exchange closest to their 52-week highs. He assumed the investor would have held equal amounts of each stock and would have refreshed her portfolio every three months by selling stocks that no longer qualified and adding the ones that did.

More Related to this Story

To provide a counter example, he also looked at how this hypothetical investor would have fared by following the exact opposite strategy of purchasing the 30 TSX stocks furthest away from their 52-week highs.

The results may surprise you. He found that the strategy of regularly buying supposedly pricey stocks that have already shot up in value would have produced a 14.3-per-cent annual average return. That was well above the market’s 8 per cent result and far, far ahead of the minus 13.5 per cent annual average return produced by the strategy of buying apparent bargains furthest away from their 52-week highs.

Mr. McGee has provided full lists of the 30 stocks currently closest to their 52-week highs and those furthest away. The top 10 on each list are shown here; go online to see the complete rosters.

More about CPMS

CPMS, a division of Morningstar Canada, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers through software and Web-based tools.

It covers more than 700 Canadian and 2,200 U.S. stocks, and adjusts for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.

What did we find?

“When speaking to many investors about their process, the phrase ‘I can’t buy now, the stock’s at its 52-week high’ seems to come up over and over again,” says Mr. McGee. “My response is usually that you shouldn’t be scared off just because a stock is trading at high levels. In fact, it’s really a signal of strength.”

Investors should be aware, though, that “momentum” strategies that depend upon buying recent winners also involve high costs because of the large amount of trading required. You should balance those costs against the gains that you can reasonably expect.

 

TSX-listed stocks closest/furthest from their 52-week highs

Company Symbol Market Cap. ($ mil.) Price (July 13) % Difference from 12m High
Stocks Closest to 52-wk. Highs
Cominar REIT CUF.UN-T 2,712 24.47 0.1%
Cdn Apartment Prop REIT CAR.UN-T 2,308 24.72 0.3%
Primaris Retail REIT PMZ.UN-T 2,092 23.79 0.8%
Aliment'n Couche-Tard ATD.B-T 8,631 48.20 0.8%
RioCan REIT REI.UN-T 8,033 28.10 0.8%
Northland Power Inc. NPI-T 1,544 18.28 0.9%
Artis REIT AX.UN-T 1,831 16.80 0.9%
H&R REIT HR.UN-T 4,512 24.93 1.0%
Calloway REIT CWT.UN-T 3,069 28.65 1.0%

Source: Morningstar Canada

Print

Download table as a CSV file

View full table

  • CUF.UN-T
  • CAR.UN-T
  • PMZ.UN-T
  • ATD.B-T
  • REI.UN-T
  • NKO-T
  • GBU-T
  • RIM-T
  • SGR-T
  • TCM-T
Live Discussion of CUF.UN on StockTwits
More Discussion on CUF.UN-T
Live Discussion of CAR.UN on StockTwits
More Discussion on CAR.UN-T
Live Discussion of PMZ.UN on StockTwits
More Discussion on PMZ.UN-T
Live Discussion of ATD.B on StockTwits
More Discussion on ATD.B-T
Live Discussion of REI.UN on StockTwits
More Discussion on REI.UN-T
Live Discussion of NKO on StockTwits
More Discussion on NKO-T
Live Discussion of GBU on StockTwits
More Discussion on GBU-T
Live Discussion of RIM on StockTwits
More Discussion on RIM-T
Live Discussion of SGR on StockTwits
More Discussion on SGR-T
Live Discussion of TCM on StockTwits
More Discussion on TCM-T

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories