10 stocks leading the market higher at the half-year

At the half-year, Stockopedia's Ben Hobson names 10 stocks that are hitting new highs.

With six months gone in 2019, the FTSE All Share is well on its way to recovering from the slide that took hold late last year. The index has managed a 13% gain in the first half, but that glosses over some impressive performances from a handful of fast moving stocks.

A look at the names currently hitting one-year price highs suggests that funds are flowing into generally larger, less volatile names in more defensive and less sensitive industry sectors. So while the market is certainly on the up, there’s still a sense of caution around.

Before looking at some of those new 52 week highs (which is something we often do in this column) here's a quick reminder about some of the conceptual thinking around why this particular subject is so interesting.

The 52 week high is a ubiquitous stock market measure; they're published everywhere because we all like to know which stocks have been outperforming. But the usefulness of ‘new highs’ goes a bit further than that.

A driver of momentum

Research over the past 20 years has made a connection between stocks hitting one year highs and momentum as a powerful driver of market returns. In straightforward terms, momentum is the observation that trends in the stock market tend to persist. What goes up tends to keep going up (at least for a while). And what goes down, tends to keep going down. 

So 52 week highs are one of the most extreme representations of stocks that are in the ascendancy. Coupled with momentum, the idea is that these stocks should continue to keep rising - and that’s exactly what a lot of momentum research has found.

The cause - the reason why stocks hitting new highs often keep going - is believed to be down to behavioral drivers like "anchoring" and "framing". These psychological conditions basically describe what happens when investors (as human beings) are slow to change their minds. We develop a reluctance to re-assessing the investment and perhaps even see the 52 week high as a negative. But as time wears on, and investors get to grips with the new high, the price starts to rise and momentum builds.

So at the half-yeap point, which stocks are hitting these kinds of new highs?

Source: Stockoepdia

The answer is that they're currently quite a defensive group - with one exception being the high street bakery chain Greggs (LSE:GRG), which is currently writing the rulebook on how to execute a successful roll-out.

Overall, the fastest movers have generally been large-caps - and you see them here in the form of big industrials like Rentokil Initial (LSE:RTO) and RELX (LSE:REL), the mining giants Rio Tinto (LSE:RIO) and BHP (LSE:BHP), blue chip defensive Unilever (LSE:ULVR) and the healthcare group AstraZeneca (LSE:AZN).

The pulse of the market

You don't have to be a momentum investor to take an interest in 52 week highs. The academic research into price action around 'new highs' is fascinating and reveals a lot about how investor behaviour can influence (and be influenced by) stock prices. But beyond that, new highs can also give you a sense of market sentiment - like the pulse of the market - by revealing the nature of the stocks that are enjoying the biggest moves. 

Right now, the recovery is being led by some solid, dependable names. If the market continues to rise, those stocks will likely give way to smaller, more adventurous growth stocks as investors become more bullish.

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