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
|Apple (NAS: AAPL)|
|Chipotle Mexican Grill (NYS: CMG)|
|Lorillard (NYS: LO)|
Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.
But just because these stocks are purring, that's 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.
With or without a dividend, Apple is like Scrooge McDuck, swimming in mountains of cash. Analysts estimate that if it doesn't institute a dividend, it will end this year with $94 billion in cash and have $136 billion by the end of 2012, making a generous dividend a likely outcome.
If there was ever fear that it would have difficulty maintaining its cash levels in the future to sustain a dividend payment, those concerns have fallen by the wayside. For example, its iPad outsells Research In Motion's (NAS: RIMM) PlayBook by a 19-to-1 ratio, with less than 500,000 PlayBooks shipped compared with 9.25 million iPads last quarter. For a company that was putting a lot of stock in challenging the iPad, RIM's going to have to hope the BlackBerry regains traction.
Every new product introduction is examined in terms of whether it's an "Apple-killer," but the Cupertino king has less and less to worry about. Not even Amazon.com should put a serious dent in its supremacy or cause any sleepless nights.
What does keep investors awake is what a Steve Jobs-less Apple will look like. Although a number of CAPS members expect little change, davidm8797 sees a transformation ahead: "Jobs was a visionary, but whoever takes over the company will no doubt be more of a pragmatist, which will inevitably hurt the stock. At the company enters its maturity phase, the common shareholder will no doubt become the loser in the picture."
Add your own thoughts on the Apple CAPS page on whether the loss of Jobs and the possibility of a dividend changes the way the iconic company perceives the market and is perceived by it.
When a restaurant essentially triples its revenue over the past five years while only doubling the number of stores, it's clear that the company has found a recipe for success. Welcome to Chipotle Mexican Grill, which not only can pop open a store seemingly at will and have it turn profitable -- operating margins of 15% put it in the upper echelon of quick-serve leaders like Yum! Brands -- but it also dominates its own fast-casual niche. Same-store sales grew 11% in the first six months of the year, whereas Panera Bread (NAS: PNRA) saw just a third of that growth.
With 135 to 145 new stores planned for the fiscal year and management targeting high single-digit to low double-digit comps growth, it's apparent that Chipotle doesn't see the landscape or its position in it changing all that much. Neither does CAPS member MajorBob04, who sees stellar performance for the next few years.
The fast casual segment of the restaurant market has been the best-performing one during the recession, according to NPD Group, so with the possibility of a double dip around the corner, let us know on the Chipotle Mexican Grill CAPS page whether you think it can continue to cook up such growth. Then add the stock to your watchlist to see whether it delivers on the promise.
Smoke 'em if you got 'em
Smoking is good for your health -- your financial health, that is. This year alone, cigarette makers are outperforming the market, with Altria (NYS: MO) up 11%, Philip Morris (NYS: PM) 15% higher, and Reynolds American jumping 19% compared to the S&P 500's 5% decline. But none has done better than Lorillard, which has climbed 39% since the start of the year.
The surge in shares of the Newport cigarette maker began after the FDA decided not to ban menthol-flavored cigarettes. With its signature brand being the best-selling menthol and the one accounting for most of its revenues, Lorillard had little to fear that sales would continue apace. Add in a healthy dividend yielding almost 5%, and it's easy to see why CAPS member HunkaChunk is impressed: "Cash rich, stable dividend, smallest player so largest potential for growth."
Even if you'd never think of lighting up yourself, put Lorillard into the Fool's free portfolio tracker and let us know in the comments section below or on the Lorillard CAPS page whether you think you can count on its ability to keep smoking the competition.
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 Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Yum! Brands, Philip Morris International, Berkshire Hathaway, Research In Motion, Chipotle Mexican Grill, Altria Group, and Panera Bread. Motley Fool newsletter services have recommended buying shares of Apple, Panera Bread, Amazon.com, Berkshire Hathaway, Chipotle Mexican Grill, Yum! Brands, and Philip Morris International, creating a bull call spread position in Apple, creating a bear put ladder position in Lorillard, and creating a iron condor position in Chipotle Mexican Grill. 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. The Motley Fool has a disclosure policy.
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