Low-priced stocks hitting new highs offer profitable opportunities because they’re poorly covered by Wall Street and aren’t components in broad-based exchange-traded funds. These omissions allow them to trade under the radar and avoid many of the macro forces that affect returns. In addition, history tells us that uptrends in a select few will eventually reach critical mass, delivering life-altering payouts to patient shareholders.
Group members trading at all-time highs generate the best plays because they aren’t bouncing off deep lows after long-term downtrends, but these securities are scarce when small caps lag the blue chips, as they are in 2019. Even so, new uptrends in old losers can be equally rewarding when rallies erupt out of basing patterns and companies tell evocative stories that generate big turnaround calls.
Avon Products, Inc. (AVP) is a classic fallen angel, descending from 2004’s all-time high in the $40s into December 2018’s all-time low at $1.30. The stock bounced at the 1974 low near $2.50 in 2015 and reversed at $6.96 ahead of the 2016 election, breaking 42-year support one year later. It continued to sell off in 2018 but jumped back above new resistance in January 2019, setting off long-term buying signals.
The uptick stalled in the second quarter under May 2017’s unfilled gap between $4.25 and $4.60, yielding an ascending triangle that will generate a breakout on a buying spike above $4.10. Reward potential looks decent because, once the gap gets filled, the uptrend may set its sights on the .786 Fibonacci sell-off retracement level at $5.74 and the 2016 high at $6.96. Volume readings support higher prices as well, with accumulation-distribution at an 11-year high.
South American steel producer Companhia Siderurgica Nacional (SID) posted an all-time high at $26.23 in 2008 and sold off during the economic collapse, bouncing at $3.93. A lower high in 2010 gave way to renewed selling pressure that broke support in 2013, ahead of a steep decline that ended at a 13-year low in 2016. The stock failed four attempts to remount 2008 resistance into January 2018 and is now engaged in a fifth test.
The rally into March 2019 stalled at $4.60, yielding a pullback and bounce that has carved the outline of an inverse head and shoulders pattern. An uptick above the June high at $4.69 should attract steady buying interest, completing the breakout while opening the door to substantial upside. Just keep in mind that bullish and bearish forces at work are slow-moving, and it may take time for upside momentum to develop.
Alphatec Holdings, Inc. (ATEC) makes and markets surgical instruments and systems. The company came public at a reverse split-adjusted $108 in June 2006 and entered an immediate downtrend that continued into the 2009 low at $13.20. It broke that support level in 2015 and continued to post lower lows into February 2019’s all-time low at $1.18. It has been all upside since that time, with price gaining more than 400% in just five months.
That rally stalled after mounting the October 2017 high at $4.27 in April, while price action in the past two months has carved a symmetrical triangle that may complete a breakout targeting the 2017 high at $5.80 and .618 Fibonacci sell-off retracement level at $6.40. Buying pressure has been solid as a rock so far in 2019, with accumulation-distribution readings lifting through a series of new highs.
The Bottom Line
Three cheap stocks hitting new highs could offer speculative profits for aggressive investors and traders.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.