You Get What You Pay For
Back when the market bottomed out in March, we saw come crazy stock valuations. Dow stalwart General Electric (GE) bottomed out at nearly $5. Automaker Ford (F) briefly was trading for about $1 per share at its worst point, and Citigroup (C) actually broke through the dollar floor to trade at a historic low of just 97 cents. It was a bargain-hunter’s dream.
But it was also a bargain-hunter’s nightmare, with many big-name companies never bouncing back from the basement. Take the now-bankrupt GM, for instance. Or if you want a more recent example, look at the collapse of CIT group that marked the fifth-largest corporate bankruptcy in history. Investors who thought they were buying a sure thing on the cheap literally lost everything on these risky bets.
Let me state the obvious: Stock prices are all relative. If you buy a stock at $2, that’s only a good price if shares go up. Any investor worth his salt doesn’t care if a stock is at $6 or $60 right now — just that the balance sheet behind those shares is impressive, and the numbers indicate future growth.
Don’t fall into the trap of thinking stocks with pricey shares are a bad investment. There are some fantastic companies out there trading for more than $100 per share, and it would be a shame if you missed out on the gains they’ll produce just because they are priced higher than many other companies.
Here are seven of my favorite stocks right now, and they are all trading over $100 per share. Though these companies are “expensive,” I would much rather own a handful of shares in these powerhouses than scrounge in the bargain bins for scratch-and-dent penny stocks. For these companies, you’re really getting what you pay for.
Stock #1 – Apple (AAPL)
With shares pushing $200 a piece, many investors think tech icon Apple (AAPL) is out of their league. But for my money, I would much rather own five shares of Apple than 500 shares of a two-buck dud. This company has real staying power and huge profit potential.
In October, Apple reported a 46% increase in its fiscal fourth-quarter earnings, thanks to strong sales of iPhones, Mac computers and iPods. AAPL earned $1.67 billion, or $1.82 per share, on revenue of $9.87 billion. During the same period a year ago, Apple earned $1.14 billion, or $1.26 per share on $7.9 billion in sales. Apple’s results topped forecasts of $1.42 per share on revenue of $9.2 billion with a stunning 28% earnings surprise and a 25% sales surprise.
It’s easy to see why Apple is leading the tech revolution, from digital media distribution to smart phones to personal computing. The company’s iPod and iTunes lead the digital music industry, and the iPhone is one of the hottest smart phones out there. AAPL also hasn’t forgotten its personal computing roots and has cut into the dominance of Windows with its OS X operating system and fleet of Mac computers.
Sales of the iPhone have accelerated recently, so I expect Apple’s earnings to gain momentum going forward. Even at almost $200, AAPL shares are a bargain right now.
See also: Apple to Soar Behind 3GS Momentum
Stock #2 – Alcon (ACL)
Alcon (ACL) is one of the world leaders in eye care products. Shares are cruising at around $140 right now, and the company’s market cap is an impressive $42.3 billion. This Swiss health care company produces everything from contact lens solution that you find in your local grocery store to cutting-edge surgical products used in the world’s top hospitals.
In its latest quarterly report at the end of October, Alcon said its profit fell 18% compared with last year, but that was largely due to a huge tax benefit in 2008. The important number to look at for ACL is the earnings estimate, which was a mere $1.45 per share compared with Alcon’s $1.71 per share, resulting in a 18% earnings surprise as this company trounced expectations. What’s more, revenue rose an impressive 6%, even while many competitors continue to lose ground in this challenging market.
With health care reform taking place on Capitol Hill right now, Alcon is poised to cash in big-time. That’s because whatever the details of the final bill in Washington, the bottom line is that Congress is focusing on increasing coverage and access to insurance. That means more customers for Alcon — and whether the insurance companies, Uncle Sam or individual patients foot the bill is irrelevant. I rate Alcon a good buy right now and expect share prices to continue to move higher.
Stock #3 – Baidu (BIDU)
Baidu (BIDU) is the leading Chinese-language Internet search engine, with more than 70% of China’s search market. This is a big-time stock with a big-time share price of nearly $400. But don’t think this means the company can’t gain any more ground. Shares have doubled since April 1, when they were trading at an already pricey $174.
Some people say this company is China’s Google, but in fact, this company is faring even better than that iconic company since Google’s head in China recently resigned after failing to challenge BIDU. Baidu earns nearly all of its revenue through online advertising services but also operates a network of third-party websites and online communities.
The numbers prove BIDU is a powerhouse. In its latest quarterly report in October, Baidu reported a 42% jump in Q3 earnings. The company also announced a search deal with local carrier China Unicom, dealing a blow to Google, as the companies race to grab a slice of China’s growing mobile search market. This growth strategy continues to pay off, since Baidu reported an active online-marketing customer base of 216,000 for Q3, an 11% increase from Q2, and that helped drive up the amount of revenue per customer by 26% on the quarter.
You may think $400 per share is a lot to pay for a stock, but with explosive growth like this, you are sure to see a return on that investment. Buy Baidu today.
Stock #4 – CNOOC Ltd. (CEO)
Another great Chinese stock is CNOOC Ltd. (CEO). The company manages China’s offshore oil and gas exploration and production activities, in partnerships with international oil and gas firms.
Under Chinese government-regulated production sharing contracts, CNOOC has the sole right to acquire up to 51% of any successful discovery offshore China made by foreign partners, making it the #1 energy company in the #1 emerging market in the world. That’s a great place to be.
Recently, CNOOC reported a significant drop in profits due to lower oil prices. This is to be expected, considering oil prices were setting new records every day at this time last year. But it’s important to note that CEO’s oil production grew by 16% on the quarter, attributed to underdeveloped foreign fields off Nigeria. This means that as oil prices firm up once more, CNOOC is going to reap bigger and bigger profits.
With economic recovery taking shape and a weak dollar driving up commodity prices, we can be sure oil prices will continue to move up for the rest of 2009 and into 2010. This means big things for CEO shares, so buy in now before shares move even higher!
Stock #5 – MasterCard (MA)
MasterCard (MA) is trading at over $200 per share, and the company is thriving right now even though many financial-related companies seem to be under pressure. That’s because MasterCard is so much more than just a credit card company, and the company has done a good job keeping expenses down and cashing in on fees instead of debt-related income.
At the beginning of November, MA reported higher-than-expected quarterly earnings after aggressively trimming marketing expenses and raising fees to banks. Specifically, MasterCard’s third-quarter net income was $452 million, or $3.45 per share, compared with a loss of $194 million, or -$1.48 per share, a year earlier. Wall Street was looking for -$2.94 per share, tallying a 17% earnings surprise for this company.
This makes six quarters in a row that the company’s earnings topped Wall Street’s forecasts significantly. Share prices continue to creep upwards, and I expect big things from MasterCard on the heels of this impressive quarterly report. Buy this stock.
Stock #6 – Amazon (AMZN)
Amazon (AMZN) started as Earth’s biggest bookstore and is now leading the charge to bring books into the 21st century with a digital format for the written word. The company’s breakout success with its Kindle eReader has breathed new life into this dot-com icon and has pushed shares up to about $120.
The success of the company’s electronic reader is not just on blogs and customer forums, either. This product has generated very real profits for Amazon. In fact, the Kindle helped boost AMZN’s third-quarter net profit to $199 million, or 45 cents per share, on $5.45 billion in total sales. Analysts were expecting earnings of 33 cents per share on $5.03 billion, so AMZN posted a huge 36.4% earnings surprise and a 7.7% sales surprise.
These results sparked a wave of buying pressure that sent shares up to their highest level in almost 10 years.
But if you think this is the peak for Amazon, think again. Relentless expansion has propelled Amazon in countless directions in the quest of bigger sales and profits. The company’s main website offers anything from books to auto parts to groceries. Shoppers can also download digital content such as games, MP3s and movies to their computers or handheld devices — including Amazon’s innovative portable reader, the Kindle.
Once the American consumer starts spending freely again, I expect to see Amazon shares skyrocket. Though AMZN is trading at over $100, it is a bargain right now so buy in before the surge.
Stock #7 –
Intuitive Surgical (ISRG)
Health care powerhouse Intuitive Surgical (ISRG) is trading just shy of $250 per share, and it’s a bargain at that price. This health care stock has weathered the recession marvelously and is in prime position for big growth in the months ahead.
In its recent earnings report, ISRG reported a rise in profit for its fiscal first quarter that ended September 30, reflecting an increase in revenues from all its segments. Specifically, profits came in at $1.64 per share, topping forecasts by double-digits. Net revenues also rose 20% to $280 million compared to last year, handily topping estimates estimate of $258 million.
Like Alcon, I expect health care reforms to really boost this stock. But more importantly, I expect strong revenue growth and healthy margins to deliver continued success for ISRG in the months ahead. If shares are at $250 now, I expect them to push through $300 sometime in 2010.
Buy into this stock before the surge for your share of those profits.
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Top 5 Stocks for 2010
These must-have companies are just hitting their stride and are poised to outperform the market in the short-term. Investing pro Louis Navellier reveals his top five picks for 2010 in this free stock guide — download your FREE copy here.