High-Priced Stocks Worth Every Penny
Penny stocks are one way to double your money, though it's fraught with risk. But there are equally shiny opportunities trading at the other end of the price spectrum, too. I call 'em "three-digit stocks," yet if they're anything like Berkshire Hathaway, they can trade in the four-, five-, and six-digit range as well.
A penny stock might not be a good buy despite the fact that it's cheap, and a three-digit stock shouldn't scare you away just because it carries a hefty price tag. Handsome is as handsome does. Let's check in with the Motley Fool CAPS community to see which of the high-priced stocks below earn the greatest confidence from our investor-intelligence database:
CAPS Rating (out of 5)
Return on Capital, TTM
|Fossil (NAS: FOSL)||***||$118.45||27.5%|
|Regeneron Pharmaceuticals (NAS: REGN)||*||$105.83||(15.9%)|
Source: S&P CapitalIQ, Motley Fool CAPS.
But don't jump into these stocks blindly. Catching a tiger by the tail -- or a knife falling from on high -- can end up leaving you scratched and bleeding. That's why we recommend you use this list as a launch pad for your own research and analysis.
Make the time
In less than two months time, watchmaker Fossil went from trading for less than $80 per share to over $118, a 48% jump so fast that it ought to challenge Einstein's theory of relativity. Yet the big boost it got the other day from its earnings report is actually a bit surprising, since it offered guidance that was decidedly below analyst expectations. The market routinely punishes those companies that don't engage in a beat-and-raise process, even in the luxury-goods segment. (For example, diamond dealer Blue Nile (NAS: NILE) was punished yesterday for offering guidance that was well below forecasts.)
Motley Fool blogger Chad Henage offered some insight as to why this may be. He compared Fossil to another accessories maker, Coach (NYS: COH) , which also benefits from consumer demand for affordable luxury. He says one need only price the watchmaker at the same multiple as the market values the purse purveyor, and an investor can see there is still a lot more room for Fossil's stock to grow.
So Fossil has the lower projected PEG, higher future growth, and beats earnings by a higher margin. If Coach is valued at a PEG of 1.28 this means if Fossil sold at the same PEG the stock would be at $139. It seems not only is a higher price not a fantasy, but this could be a reality sooner than the market expects.
If you've got the time, add Fossil to your Watchlist and let us know in the comments section below or on the Fossil CAPS page whether this stock is one to ... well, watch.
A sight for sore eyes
Biotech Regeneron has peeled back a little bit from the lofty valuations it gained the other day after offering guidance that suggested 2012 sales of its age-related macular degeneration treatment would be double what it was previously expecting (a different bit of beat-and-raise gamesmanship), but the Fool's Brian Orelli says investors would be smart to take the nosebleed numbers with a grain of salt.
Don't look at what Regeneron can do this quarter or even next year, but rather the revenue stream of Eylea will be when it really hits its stride. Whatever number that will be, the sales prognostication offered the other day doesn't change that outlook, and the 50% year-to-date gain the stock has enjoyed probably isn't justified. It's gotten off to a fast start against Roche's Lucentis, but it will now need to maintain that pace.
Yet Regeneron bulls might counter that, along with Eylea, the drugmaker has other treatments in the pipeline that support a higher valuation. It has an experimental cancer drug under development with Sanofi (NYS: SNY) and is looking to expand uses for both Eylea and Arcalyst, a treatment currently approved only for certain genetic conditions.
CAPS All-Star member TMFUltraLong recommends not getting overly excited about new drug introductions right away.
I'm agreeing with Brian here -- fantasyland valuation. There's no way that Eylea's forecast of $250 million to $300 million in sales translates into a $10.5 billion market cap. Avastin should give Eylea enough competition to bring Regeneron back to Earth. Never get too excited about new drugs; otherwise, you often get burned.
Put Regeneron in the Fool's free portfolio tracker to see if it's able not only to take on the competition but also to meet its own lofty goals.
Count to 10
These three-digit stocks might be on their way to even higher valuations, but the smartphone revolution has the potential to upset everyone's game plan. Check out The Motley Fool's report "3 Hidden Winners of the iPhone, iPad, and Android Revolution" and get access to detailed analysis of these outsized opportunities -- it's completely free.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Fossil and Coach.Motley Fool newsletter serviceshave recommended buying shares of Fossil, Coach, and Blue Nile. A separate service has recommended shorting Fossil. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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