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Hey there, Fools. I’m back again to highlight three stocks hitting new 52-week highs. As a reminder, I do this because hitting a new high can mean one of two things:
- the stock’s price strength will keep pushing it even higher and higher; or
- the stock is “overbought” and is due for a significant correction.
Fundamentals are always the most important thing. But it’s important to look into red-hot stocks to assess how sustainable their momentum is.
So, without further ado, let’s get to our list.
Real estate returns
Leading things off is Morguard North American REIT (TSX:MRG.UN), whose shares hit a new 52-week high of $17.49 late last week. Year to date, the residential REIT is up 15% versus a loss of 14% for the S&P/TSX Capped Materials Index.
Morguard continues to fire on all cylinders. In its recent Q3 results, net operating income increased 8.5%. More importantly, basic funds from operations (FFO) — a key metric in the real estate industry — improved 7% to $15.5 million. Due to that operational strength, management upped its annual cash distribution by $0.02 per unit.
Currently, the stock sports a yield of 4%. And with a FFO payout ratio of just 54%, it might be too attractive to pass on.
Next up, we have Pason Systems (TSX:PSI), which spiked more than 15% to a new high of $24.57 on Thursday. Shares of the drilling services specialist are up 20% year to date, while the S&P/TSX Capped Energy Index is down 19% over the same time frame.
The recent pop was fueled by another strong quarter. In Q3, net income more than tripled to $24.4 million as revenue jumped 28% to $82.3 million. Meanwhile, free cash flow clocked in at a healthy $26.9 million. Although management expects drilling activity to be largely flat in 2019, it remains confident in the company’s positioning.
With no debt on the balance sheet to go along with a yield of 3.2%, Pason’s floor looks limited even after the rally.
Rounding out our list is Labrador Iron Ore Royalty (TSX:LIF), whose shares hit a 52-week high of $31.36 late last week. Over just the past six months, the iron ore royalty company is up an impressive 45% versus a loss of 14% for the S&P/TSX Capped Materials Index.
Don’t bet on Labrador Iron’s operating momentum to slow anytime soon. In its Q3 results last week, royalty revenue increased 11% $44 million. And while total production was down year over year, it was about 240% higher than the second quarter of 2018. Looking ahead, management expects solid production and strong prices for the balance of 2018 and moving into 2018.
Currently, the stock sports a dividend yield of 3.3%. Of course, when you combine the stock’s high volatility — nearly three times the market average — with its recent rapid rise, I’d be especially cautious moving forward.
The Foolish bottom line
There you have it, Fools: three stocks hitting new 52-week highs worth investigating.
As always, these aren’t official recommendations. Just think of them as a starting point for more research. Stocks with price strength can be especially fickle, so extra due diligence is required.
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Brian Pacampara owns no position any of the companies mentioned. Pason Systems is a recommendation of Stock Advisor Canada and Dividend Investor Canada.