NEW YORK (TheStreet) -- Buying a stock on sale might be wise money management, but it doesn't mean that you have to wait for a sale to get a great price on an investment. As I have discussed before, investors can make money by predicting a stock will move still higher.
Previous price information can help you predict where a stock price may go in the future. And buying a stock above the moving averages can mean you are "going with the flow." Everyone who has studied how to invest knows that the "trend is your friend," unless it's about to end.
I have previously reviewed stocks that are breaking above or near their 52-week highs to find the ones I believe have the strongest investor risk-to-reward ratio.
Again, my filtering process includes:
- A minimum trading threshold -- This eliminates the thin stocks that keep so many up at night.
- Improving year-over-year results relative to the stock price increase -- We want plenty of reasons why the stock should continue to move higher.
- Analyst price targets that are higher than the current price -- We want others to believe the stock will continue to appreciate and to maintain the buying pressure.
- Limited insider selling -- Generally we want to see no insider selling. But because of compensation methods and diversification goals, some insider selling is acceptable. Management should have skin in the game.
- Low short interest -- I consider short sellers to be the smart money. There is no reason to bet against them when we have plenty of stocks to pick from.
Here are six companies with stocks near their highs that fit these criteria:
Apple designs, manufactures, markets and sells personal computers and related personal computing and communicating devices to education, creative, consumer and business customers. Apple was founded in 1976 and trades an average of 13 million shares a day and has a market cap of $619 billion.
Analysts are in love with Apple, and so am I. I have written numerous articles for
about Apple. In my
last article about companies making 52-week highs, I used Apple to illustrate why buying some of these stocks makes solid financial sense.
In the last month, the stock has moved 15.3% higher. The mean fiscal year price-to-earnings ratio is 15, based on estimated earnings of $43.89 per share this year.
Investors are receiving $2.65 in dividends for a yield of 0.4%, and the average analyst target price for Apple is $749.10. The last reported short interest is tiny at 1.2%.
Apple is building a solid price base that appears to be nearing a technical point of breaking out higher. The fundamentals support a higher price with the iPhone coming out shortly and a relatively small earnings multiple.
Kraft Foods undefined
Kraft is the largest branded food and beverage company headquartered in the U.S. Kraft trades an average of 8 million shares a day and has a market cap of $73 billion.
Kraft shares have moved higher in the last month, up 4.8%, and the average analyst target price is $43.65.
Over the last five years, its dividend has grown by an average of 3.9% a year and currently sports a yield of 2.8%. A mean analyst earnings estimate of $2.49 this year results in a price-to-earnings multiple of about 17.
Short sellers are not interested in betting against this one. Short interest is a nonfactor at a rate of 1% of the float.
CBS Corp. (CBS)
CBS is a mass media company that creates and distributes content to audiences worldwide. Its business has origins that date back to the beginning of broadcasting and new ventures that operate on media's leading edge. CBS trades an average of 4.6 million shares a day and has a market cap of $23 billion.
The average analyst target price for CBS is $39.61, which appears very reasonable considering Friday's breakout above the recent base built and the earnings multiple. The P/E ratio is 14.1, based on mean fiscal year earnings estimates of $2.55 per share.
Shareholders receive 40 cents annually in dividend payments. Also, the stock price has jumped10% higher in the last month.
Moving averages are what trend followers look for, and CBS's move higher appears far from over. Currently, the short interest is small at 2.1% and not a big concern.
Procter & Gamble (PG)
P&G manufactures and markets a broad range of consumer products in many countries throughout the world. Products fall into five business segments: fabric and home care, paper, beauty care, health care, and food and beverage. Today, P&G markets more than 250 products to more than 5 billion consumers in 130 countries. P&G trades an average of 8.8 million shares a day and has a market cap of $182 billion.
Shares have moved higher in the last month, gaining 3.3%. The average analyst target price for PG is $69.23. The mean P/E ratio is 17.1, based on estimated fiscal year earnings of $3.90 per share this year.
P&G currently pays $2.25 a share in dividends for a yield of 3.37%. The dividend has grown by an average of 10% per year. P&G is near technical resistance on the monthly chart, but with ever-increasing dividends and a monster 3.3% yield, it's only a matter of time before P&G breaks higher.
A price just under $65 would be a sweet buy based on the current situation. With the base that P&G is building, it may be tough to get.
Short sellers are next to impossible to find. Short interest is so low at 0.7% that I only include it to demonstrate that the smart money is not betting against this company.
Sprint Nextel (S)
Sprint offers a comprehensive range of wireless and wireline communication services to consumer, business and government customers. Sprint was founded in 1899 and trades an average of 81 million shares a day and has a market cap of $14.3 billion.
After last week's dip in price, Sprint really tore up the charts. It is still 18% higher than a month ago.
Investors will want to monitor changes to see if short sellers dial up the warning signals. Otherwise, current short interest of 5.2% of the float is relatively small and not a major concern. Unsurprisingly, Sprint short interest has fallen quite a bit in the last month and a half.
The new iPhone 5 will likely provide another boost to Sprint in two ways: Lower iPhone 4S prices will help Sprint meet contract obligations and a new iPhone product will increase interest in Apple products.
I was in
, which is owned by
, this weekend and saw that an iPhone was priced at $149 with a contract. My wife was quick to point out that she would like one to go along with an Apple computer.
Sirius XM Radio (SIRI)
Sirius is a digital satellite radio system that broadcasts music and entertainment programming throughout the continental U.S. Sirius was founded in 1990 and trades an average of 93.4 million shares a day and has a market cap of $9.7 billion.
In the last month, the stock has really moved higher, gaining 18.8%. The average analyst target price for SIRI is $2.68. A couple of weeks ago, while making new 52-week highs, I discussed Sirius in a similar article
Five Buys Near 52-Week Highs.
It appears that Liberty is moving in to take control of Sirius, which is very valuable to Liberty for the NOLs, or operating losses for tax purposes. How this will ultimately play out for average retail investors is uncertain, but based on the moves Liberty has made so far, I would not expect a huge payday. Liberty has played its hand well so far and has not left much on the table.
At least one investor is unhappy about Liberty's actions to take control of Sirius. It appears the city of Miami Police Relief and Pension Fund is suing Sirius for not doing enough to protect non-Liberty shareholders from a takeover.
With that said, look for dips to create buying opportunities in Sirius. It may be smart to hedge with covered call writing. Better safe than sorry when big money is positioning itself, from my vantage point.
Dollar for dollar, Sirius does have the attraction of large percentage moves in its shares. For those with a desire to allocate higher risk capital for greater gains, Sirius may be a stock with clear reception.
The current proportion of the float sold short is about 7%. In the last short interest report on Aug. 15, it had the lowest number of shares short in 2012. About 260 million shares remain shorted.
Note: The author uses SEC.gov, Zacks.com, WSJ.com, Tradestation and Reuters for data. P/E ratios are generally adjusted based on an average number of shares and for operational earnings.
At the time of publication, the author held no positions in any of the stocks mentioned
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.