Should I Buy Blue Chips At 52-Week Highs?

What to doSomething quite exciting is happening in the Singapore market. Despite all the talk of doom and gloom in the global economy, a preponderance of shares has recently been hitting 52-week highs.

A quick trawl of the Singapore market reveals a plethora of shares that are within 10% of their 52-week highs. In fact, the Straits Times Index (SGX: ^STI) is just 9% from its 52-week high. But what does this mean, if anything, to simple souls like you and me?

For a start, it can provide a quick snapshot of what’s been happening in the market. Right now, Singapore banks are flirting with their 52-week highs.

If I have said it once, I have said it a thousand times before. When the economy is on the back foot, banks get hammered. That’s because they tend to be more exposed to what is going on and they feel the pain more than other industries.

But when the economy is on the front foot, banks can make lots of money. That’s because, you guessed it, they tend to be more exposed to what is going on. It’s the way things have been since banks were created.

Currently, shares in Singapore’s largest bank, DBS Group (SGX: D05), are just 5% shy of their 52-week high of S17.90. Meanwhile, United Overseas Bank (SGX: U11) is also just 5% off its 52-week high and Oversea-Chinese Banking Corporation (SGX: O39) is a mere 7% away from its 52-week high.

Industrial conglomerates also appear to be on the crest of a wave. Sembcorp Industries (SGX: U96) and Keppel Corporation are both within touching distance of their 52-week highs.

Whether a share is at a 52-week high or, indeed, if it is at a 52-week low, is irrelevant without looking at valuations. What’s more, just because a share is at a 52-week high doesn’t mean that it can’t go higher.

Simply relying 52-week highs and lows to make investing decisions in isolation can not only be dangerous but also pointless. However, understanding why a share has reached these levels within can tell us lots.

Consequently, by picking shares in company whose underlying business is stable and predictable may mean that it could be hitting 52-week highs time and time again.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.