by Jeff Reeves | July 17, 2013 7:00 am
At the end of the day, it doesn’t matter what you pay for stocks. If you have one share of a $10,000 stock or 10,000 shares of a $1 stock, you have the same skin in the game if the stock goes up 10% — the math works out to $1,000 in profits either way.
But many stock market investors are obsessed with share price, whether it be a desire to buy round lots (that is, blocks of 100 shares) or a desire to buy as many shares as possible just to feel like they have a meaningful stake.
That sometimes keeps them out of some great investments on price alone. Because while you might only be able to buy one or two shares of a given stock, your money will double just the same if the stock goes up 100% — even if you are a “small” investor on a share-number basis.
Yes, it’s harder to balance your portfolio this way since it’s not as easy to adjust your total exposure when you have to think in $500 blocks instead of $35 increments. But don’t let that scare you out of expensive stocks, because there are a host of red-hot investments out there that are worth a look despite their hefty stickers.
Here are five high-fliers with high prices you might want to consider:
Google (GOOG) has been on a tear in the past year, going from $560 or so last summer to around $920 right now for a 60% gain.
Some people compare Google to Apple (AAPL), wondering how long the momentum will keep up — especially after red-hot run for its 2004 IPO to the market’s peak in 2007 added 800% to shares … only to be followed by a horrific 60% decline as the broader market cratered.
But there are reasons to expect growth to continue. While online advertising remains Google’s bread and butter, in its annual report for 2012 the company reported that “other revenues” hit $829 million in the last fiscal year — a huge figure that represents 6% of total revenue. Not bad for a bunch of pet projects.
And this year has seen even more focus on outside revenue sources, including subscription-based YouTube channels to capitalize on its 1 billion-plus users, an ambitious Google Fiber Internet service project and a line of slick Nexus smartphones and tablets that will get it into the hardware game.
Google’s Q1 numbers were great. Revenues climbed by 31% to $13.97 billion, while net income improved 16% to $3.35 billion. To top it off, GOOG has about $50 billion in the bank.
The stock has a forward P/E of only about 17 right now — right on par with the forward P/E of the entire Nasdaq 100, so it seems fairly valued. And if the revenue keeps coming in, we can expect future growth to push earnings higher and support a move in share prices, too.
With that mix of stability and future growth potential, the $900-plus price on Google might seem cheap down the road.
Google reports earnings this Thursday, so stay tuned.
MasterCard (MA) isn’t a sexy name or in a sexy business. But it’s at the epicenter of a macro trend that is tough to ignore: the decline of paper money and the increasing dominance of e-commerce that relies on electronic banking.
MasterCard is a glorified toll-taker in the business world, exacting a small fee for hooking up merchants with customers’ payment options. MA is just a payment processor and not a financial stock, since it doesn’t actually issue cards or hold consumer debt.
But this is a good thing because it allows you to get access to the growing credit card and e-commerce scene by directly playing per-swipe transactions. The decline of paper money usage and a mild economic tailwind that is increasing transaction volume is lifting MasterCard stock, with market-beating gains of 21% year-to-date in 2013 and roughly 280% gains since the March 2009 lows.
And it’s not just the U.S. fueling growth — it’s emerging markets in Latin America and Asia, where reliance on bank accounts and debit cards are on the rise.
MasterCard reports earnings July 31. After a strong performance last quarter with a 12% profit increase that beat expectations, we could see another move higher for MA on similar results.
It used to be that people would look at the “want ads” in the newspaper. Then online job sites like Monster Worldwide (MWW) blew up that model by posting positions online and connecting employers with prospects via the Internet.
Well, LinkedIn (LNKD) has taken that one step farther in the age of social media, tying together networking, job ads and even content tied to professional development. The stock has blown up as a result — LNKD priced its 2011 IPO at $45 and now trades around $190.
Don’t think this is just a social media fad like Facebook (FB), however, dependent on fickle users and display advertising. While Facebook is struggling to find profits thanks to mobile challenges, LinkedIn boasts a host of corporate customers. Its annual report in February revealed a 78% jump in Corporate Solutions customers — that is, enterprises or professional organizations that use LinkedIn for recruiting or marketing services.
LinkedIn also is rethinking the space with its Influencers content, providing professionals with career tips, news and other professional insights from thought leaders.
Also important: LNKD has a real media CEO in Jeff Weiner, who joined LinkedIn in 2008 after serving as a vice president at Yahoo (YHOO) — which owns HotJobs, one of those Internet job sites like Monster that disrupted the space previously.
LinkedIn reports earnings at the beginning of August.
AutoZone (AZO) has underperformed the S&P 500 in the past year or so, only adding about 14% vs. 24% for the broader market. But the long-term growth story of this pick remains powerful — and as the largest auto parts retailer by revenue, it is an entrenched player that isn’t going anywhere.
The secular force lifting AZO is a general lag in new-car buying among Americans after the Great Recession. Folks are driving older vehicles longer, with the average age of a vehicle north of 11 years. And that’s the average!
It all adds up to a lot of brake jobs and oil changes to keep these older vehicles running longer — and more importantly, running at all.
Shares of AZO are up more than 60% since January 2011 as a result of this trend, doubling the market, but things have cooled off recently as new-car sales have improved. However, it is unlikely that the trend of driving older vehicles longer is going away, especially with a persistently high unemployment rate … and AutoZone’s reach with almost 4,700 locations means that it is at worst a stable player that won’t lose much ground.
AZO’s revenue has increased year-over-year every quarter for the past five fiscal years (that’s 20 quarters), as has its earnings per share, and it’s hard to argue with growth that consistent even if it isn’t always dramatic on a percentage basis. With a reasonable forward P/E ratio of 13 and the expectation that this growth will continue, AZO seems like a good bet even if shares are a bit on the costly side.
The company just reported earnings at the end of May, so don’t expect another report for a few months despite the current earnings drumbeat.
Priceline.com (PCLN) and its “Negotiator” William Shatner continue to win over investors and consumers alike. Shares are up about 45% year-to-date and up about 1,500% from the October 2008 lows to current prices above $900 a share.
Why the big growth even amid relatively troubled economic times? Well, because online travel has become the norm as bookings for hotels and flights moves increasingly to the Internet as travel agents get cut out of the picture — and that, coupled with consumers’ desire to shop around for deals, has made Priceline indispensable.
And don’t think that the Great Recession has meant growth has been hard to come by. Thanks to aggressive international expansion that now covers over 180 countries and territories, Priceline managed to improve revenues from fiscal 2009 to fiscal 2012 at an average annual rate of 40%, while earnings grew at a 60% rate!
That’s a heck of a performance for a tech company that is more than a decade old — a lifetime in Silicon Valley, and a period that has seen no shortage of imitators across the online travel space from Expedia (EXPE) to upstarts like Hipmunk. But Priceline continues to command a huge share of the pie … and the pie itself seems to keep growing.
That’s a bullish sign for investors, even if PCLN has already seen exponential growth during the past few years.
Priceline.com reports earnings Aug. 6.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via@JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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