The stocks in this article are all trading near their 52-week highs. This strength often reflects positive developments such as new product launches, favorable industry trends, or improved financial performance.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here are three stocks getting more buzz than they deserve and some you should buy instead.
Advanced Energy (AEIS)
One-Month Return: +16.2%
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Should You Dump AEIS?
- Annual sales declines of 5.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 9.9% annually, worse than its revenue
- Eroding returns on capital suggest its historical profit centers are aging
Advanced Energy’s stock price of $198.44 implies a valuation ratio of 33x forward P/E. If you’re considering AEIS for your portfolio, see our FREE research report to learn more.
Ducommun (DCO)
One-Month Return: +10.4%
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Does DCO Fall Short?
- Backlog growth averaged a weak 3.8% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.4% for the last five years
- Underwhelming 4.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $99.88 per share, Ducommun trades at 24.9x forward P/E. Check out our free in-depth research report to learn more about why DCO doesn’t pass our bar.
MGIC Investment (MTG)
One-Month Return: -3.8%
Founded in 1957 when the modern mortgage insurance industry was in its infancy, MGIC Investment (NYSE: MTG) provides private mortgage insurance that protects lenders when homebuyers default on their loans, enabling borrowers to purchase homes with smaller down payments.
Why Do We Think Twice About MTG?
- 1.3% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
- Operational productivity has decreased over the last two years as its combined ratio worsened by 10.7 percentage points
- Earnings per share lagged its peers over the last two years as they only grew by 6.1% annually
MGIC Investment is trading at $27.43 per share, or 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than MTG.
Stocks We Like More
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