Here's why Woolworths Limited and Beach Energy Limited could be ready to buy

Use this little trick to spot stocks that could go up higher.

a woman

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Let's talk about some of the tricks to finding good stocks.

Looking for performing companies that will rise from here can be as simple as scrolling through the list of stocks hitting new 52-week highs. For whatever reason, they are up and there's at least enough buying to keep them up.

One trick is to identify stocks that have fallen slightly from recent highs yet could continue the climb up. Many times investors sell out of a stock at the top for profit taking, even if they still like the stock. They "take a little off the table" and when the selling has died down, they might be right back in for the next leg up.

A simple correction could be around 5% – 10%, but when the fall is 10% or more, there could be a good reason for it to be down. Again, we're looking for stock ideas, so there are no knee-jerk buy reactions.

If a stock is truly going to keep rising over time, it will reach some point, take a breather and then return to the climb. Don't avoid stocks at new highs, but be ready to do some research before pulling the "buy" trigger.

Here are two stocks that have come down from new highs, but look like they have the drive to establish further highs over the near term.

— Supermarket and general retailer Woolworths Limited (ASX: WOW) is down from its late-April high within our desired range. It is a perennial grower, but doesn't usually go straight up. I think it is getting ready for a sustained rise. It is even above its 2007 pre-GFC high and not retreating.

It has some issues to work through, for example, its loss-making Masters DIY hardware stores. However, its overall growth plan is intact. Its dividend yield is a very healthy 3.8% fully franked.

Beach Energy Limited (ASX: BPT), the oil and gas producer, had strong growth in oil production and first-half earnings per share were more than the whole of FY 2013. It is working with Santos Ltd (ASX: STO) and Origin Energy Limited (ASX: ORG) to develop gas resources for the LNG export projects in QLD.

Soon it will also be teaming up with Woodside Petroleum Limited (ASX: WPL) to explore and develop an oil site in Tanzania. That brings in a lot of technical and financial assistance to get the project off the ground for new potential income sources. The stock is a little under its April $1.81 high at $1.76. It offers a decent 2.2% yield fully franked.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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