High-Priced Stocks Worth Every Penny
Penny stocks are one way to double your money, though they're 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, too.
A penny stock might not be a good buy simply because 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
|Alleghany (NYS: Y)||****||$304.19||4.8%|
|Atrion (NAS: ATRI)||****||$201.20||18.6%|
|Netflix (NAS: NFLX)||**||$237.80||46.5%|
Sources: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS as of 8/9/11.
But just because these stocks are purring is no reason to jump into them 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.
It didn't take a debt downgrade or fear of sovereign debt risk to sink insurer Alleghany. Rather, it was the severe weather patterns from earlier this year, particularly the spate of tornadoes that ripped through the heartland, that caused the property and casualty insurer to post earnings below analysts' expectations. Revenue fell from the year-ago period as net earned premiums declined. As a result, interest income was off, too.
The first half of the year seemed like a particularly disastrous time. New Zealand was the epicenter of three major earthquakes in less than a year, Japan was struck by a quake and tsunami, floods and storms have ravaged Australia, and the Mississippi and Missouri rivers overran their banks. Then there were the tornadoes. Now we're heading into hurricane season.
P&C insurers like Allstate (NYS: ALL) felt the storms' wrath, as did Berkshire Hathaway (NYS: BRK.B) , not to mention getting downgraded itself. But insurers will be looking opportunistically to increase pricing.
Highly rated CAPS All-Star Allstar13913 likes that it is a fairly conservatively managed insurer in the vein of the Oracle of Omaha's company.
Similar to Berkshire, sells casualty insurance. Hates small shareholders, with commensurate weird stock splits. Likes to invest in Energy stocks.
Add your own thoughts on the Alleghany CAPS page on whether it can continue ensuring its success.
Medical-device maker Atrion focuses on three distinct areas of health care: fluid delivery, cardiovascular, and ophthalmology. It also inexplicably owns a 22-mile pipeline in Alabama that transports gaseous oxygen under high pressure.
As successful as Atrion has been, it flies under the radar of most of Wall Street and Main Street, with just one analyst covering it. But earnings jumped 30% year over year to $3.46 per share, though 5 percentage points of the increase came through lower depreciation and amortization charges. That could be why all but one of the nearly 100 CAPS All-Stars rating Atrion think it will go on to surpass the broad market averages.
Let us know on the Atrion CAPS page whether you think it's under pressure to surpass those gains, and add the stock to your watchlist to see whether it can deliver the goods.
A virtual winner
Netflix is one of those companies that makes you wonder how the CAPS community perennially gets it wrong. The movie-rental service has sported a low, two-star rating for well over a year, yet the stock has nearly doubled in value in the past 12 months -- and just last month it was trading at over $300 a share.
Having dispatched Blockbuster, the movie-by-mail leader hasn't even had to concern itself with Coinstar's (NAS: CSTR) Redbox service, which serves more as a complementary adjunct to Netflix's own offerings. Yet it's also preparing for the day when the DVD is no more and just recently bifurcated its subscription plans to separate out its streaming service.
Microsoft (NAS: MSFT) may also be planning for the day, as it's currently not including DVD-player sound codecs in its latest build of the Windows operating system.
I'm not bashing Netflix's products or business model. But their move into streaming was a big mistake. Recently, Netflix had to pay over $1 Billion for EPIX rights (Paramount, Lionsgate, MGM). Logic follows that the company with the most money could control the streaming industry. Companies like Apple and Google who could crush Netflix and their puny $350 million in cash.
Put Netflix into the Fool's free portfolio tracker, and let us know in the comments section below or on the Netflix CAPS page whether it deserves to be a higher-rated movie star.
Count to 10
These three-digit stocks might be on their way to even higher valuations. That's why it pays to start your own research in Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.
At the time this article was published The Motley Fool owns shares of Apple, Microsoft, Berkshire Hathaway, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, Alleghany, Berkshire Hathaway, Microsoft, and Netflix, creating bull call spread positions in Apple and Microsoft, and buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.
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