10 top-performing stocks with real momentum right now

This strategy provides investors with a barometer of market sentiment and where buying is focused. 

Momentum investing strategies have a natural dislike for bearish, unsettled conditions. So it's no surprise that many of them have been on the ropes over the past year. But with the market clawing its way back from the summer slump, one of our most beloved momentum screens - the 52-week highs list - is starting to look a bit healthier. But what sort of signals is it sending about where the market is really at?

Momentum - one of the market's most powerful profit drivers - has been the name of the game in the stock market over the past decade. Value strategies have suffered at the hands of popular growth stocks, which have been on a relentless march, notching up multibagger-like returns.

But over the past year or so, the tables have shifted. Strategies that surf the upward price drift caused by momentum catalysts like earnings surprises and broker upgrades have struggled to find shares. It's traditionally been an early sign that the market might be changing direction. Although a fairer assessment might be that momentum has hit a bump rather than crashed altogether.

Among the most popular momentum strategies is the 52-week highs approach. We often pick up on this strategy for a few reasons. For a start it brings together a very simple, accessible data-point with some intriguing academic research into the way investors think and behave...

The idea is that stocks at new highs are actually prone to being priced incorrectly. Holders who have 'anchored' at a previous price may be slow to buy at the new high (and may even sell to lock in profits). Meanwhile, others may be resistant to buying stocks that have already risen sharply. Over time, this fog of uncertainty clears and the price of 52-week high stocks can drift higher.

But the 52-week highs list is interesting for other reasons, too. It's like the stock market gossip column. It's the list that everyone likes to look at, whether or not they act on it. It's a window into the market's latest big winners, recent takeover targets and the sectors and industries that could be on the up. Take a look at the current list, for example, and it's peppered with some of the premium-priced takeovers that have emerged this year - and still awaiting completion. You can count among them companies like Merlin Entertainments, Synnovia (LSE:SYN), Millennium & Copthorne Hotels (LSE:MLC) and SciSys (LSE:SSY).

But when you strip away the stocks that are on their way into private hands, what kinds of names are hitting new highs in the current conditions? Here is the current top 10:

There is actually very little in the way of sector or industry group trends here. The new highs are coming from across industry groupings, and the market-cap ranges are wide, too. Diploma (LSE:DPLM), the FTSE 250 engineering group takes top spot. It has the classic profile of a good quality, strong momentum high flyer that comes with a high valuation for investors looking to buy it. 

Among the other £1 billion-plus stocks are the likes of the fashion retailer and perennial market favourite Next (LSE:NXT), sports betting and gaming group Flutter (LSE:FLTR) and the outsourcing group Serco Group (LSE:SRP), which is endeavouring to turn around its fortunes. Meanwhile, the smaller-cap stocks include the conferences business ITE Group (LSE:ITE), specialist filtration firm Porvair (LSE:PRV) and the defence technology group Cohort (LSE:CHRT).

For investors looking for a barometer of market sentiment and a sense of where investor excitement is focused, the 52-week highs strategy is an interesting source of ideas. In buoyant conditions, as we've seen in recent years, the momentum in a strategy like this can be very powerful and predictive. But in less certain conditions, where investor sentiment can turn very quickly, momentum needs to be watched closely. But even in times of uncertainty, there can be some interesting signals to be found in lists of stocks hitting new-highs.

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