4 ‘Expensive Stocks’ Worth Every Penny

by Alyssa Oursler | September 19, 2013 12:52 pm

Roll of MoneyYesterday, Priceline (PCLN[1]) made history by becoming the first S&P 500 stock to sport a four-digit price tag[2], with shares touching $1,000.98 during the before dropping back down into the $990s.

Many investors are often blinded by hefty price tags and thus avoid nominally expensive stocks, but Priceline has proved to be one rock-solid investment. Since Jan. 1, the stock’s soared 60%, around three times the broader market.

But more important, investors should remember that it really doesn’t matter what you pay for a single share of a stock. Whether you’re holding a $1,000 share of Priceline or 100 shares of a $10 stock, a 10% gain or loss will work out to the exact same amount of moolah.

And at the same time, some stock with a huge price tags may actually be better deals than picks with a smaller share price but higher valuation.

With that in mind, let’s take a look at a few “expensive stocks” that are worth your consideration despite their eye-popping price tags.

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Share price: $312
Year-to-date gains: 25%

First up, we have e-commerce king Amazon (AMZN[4]). The popular shopping website often scares away investors with its triple-digit price tag and sky-high valuation, but it’s clear that investors have been comfortable paying what is fundamentally a big premium for even bigger potential growth.

Amazon has a lot going for it already — an innovative CEO, the Internet shopping megatrend, a popular Kindle e-reader, double-digit e-commerce market share — and also continues to try new things and expand to new countries.

No wonder, then, the company is slated for 36% annual earnings growth over the next five years — and that investors can’t seem to get enough. Over the past five years, Amazon has soared from a pretty standard $40 price tag to one north of $300.

And so far in 2013 alone, it’s beating the broader market with a 25% climb, making shelling out hundreds of bucks for a single share seem like a pretty savvy idea.

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Chipotle Mexican Grill

Chipotle Mexican Grill (NYSE: CMG)Share price: $423
Year-to-date gains: 42%

Just last year, Chipotle Mexican Grill (CMG[5]) looked like the classic story of a sizzling momentum stock that simply had to cool off. After soaring from around $50 in early 2009 to over $400 in early 2012, investors fled the stock when it failed to meet their super-high growth expectations.

Starting in April of last year, CMG suffered a 45% slide in a mere six months, punting its price back below $250.

Since then, though, investors’ stomachs started rumbling for the burrito-maker once again. The stock’s share price has gained a steady 75% from last year’s October low, including a 42% year-to-date climb. A few reasons: CMG beat earnings in the past two quarters, and is still growing.

In the most recent period, for example, revenue soared 18%, same-store sales gained 5.5% and adjusted EPS grew by more than 10%. And in the first half of the year, the company opened nearly 100 new locations. For the cherry on top, earnings are slated to improve by 20% per year long-term.

There’s always the risk that investors could once again get sick of paying a premium for CMG, and that the stock’s all-time high of $440 will make for some big-time resistance in the near term. But even if the stock bumps into some short-term headwinds, it’s clear that the restaurant chain’s popularity makes it worth a triple-digit pricetag.

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MasterCard MAShare price: $690
Year-to-date gains: 41%

Mastercard (MA[6]) is doubling the broader market with a climb north of 40% so far this year. And the reasoning is pretty simple: More and more people are switching from cash to plastic for their payments.

The only cause for concern is that Mastercard and Visa (V[7]) have been involved in a long-running battle[8] over credit-card swipe fees with merchants. But investors have believed in the stock despite the back and forth — and for good reason.

Mastercard has a steady track record of beating Wall Street expectations. In the most recent quarter[9], for one, the company beat on top and bottom lines thanks to an increase in volume and transactions, especially in emerging markets. That international exposure will help fuel growth down the line, too.

The payment processor — which doesn’t actually issue cards or hold consumer debt — has been able to grow earnings by nearly 30% per year over the past half-decade … and is still slated to add another 19% per year for the next half-decade.

Even if now isn’t necessarily the right time to get in after the stock’s sizzling run, the high-priced highflier should definitely be on your radar.

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GoogleShare price: $899
Year-to-date gains: 27%

At one point, everyone was betting on tech darling Apple (AAPL[10]) to hit the $1,000 mark. Now, though, Silicon Valley star Google (GOOG[11]) seems much more likely to win the prize.

The company, led by CEO Larry Page, is not afraid to try new things — and it’s paid off. In its arsenal, Google has everything from established services like Chrome, Gmail, YouTube and its search engine, to newer offerings like Google Glass, Motorola Mobile and Android.

No wonder then that the stock’s gone from $100 in 2004 to just under $900 now. But don’t be scared away by that number. Despite the big price tag, the king of search is cheaper on a forward P/E basis than rival Yahoo (YHOO[12]) — and it’s slated for bigger growth.

YHOO, priced at $30 per share, is slated for 11% annualized earnings growth over the next half -decade and trades for a multiple north of 18. GOOG, on the other hand, wins on both accounts with 15% estimated earnings growth and a multiple closer to 17.

Besides, the company’s culture of innovation and experimentation is almost guaranteed to foster the products and thus financial performance to keep driving that price tag even higher.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities. 

  1. PCLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCLN
  2. sport a four-digit price tag: https://investorplace.com/2013/09/priceline-stock-1000-pcln-charts/
  3. Compare Brokers: https://investorplace.com/options-trading/broker-center/
  4. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  5. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  6. MA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MA
  7. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  8. long-running battle: http://blogs.wsj.com/moneybeat/2013/09/12/merchants-square-off-with-visa-mastercard-over-swipe-fee-settlement/
  9. In the most recent quarter: https://investorplace.com/2013/08/mastercard-laughs-off-swipe-fee-ruling-with-help-of-impressive-earnings-report/
  10. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  11. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  12. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO

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