High-Priced Stocks Worth Every Penny
Penny stocks are one way to double your money, though they're fraught with risk. Luckily, 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
|Cummins (NYS: CMI)||*****||$108.96||21.9%|
|Great Northern Iron Ore (NYS: GNI)||*||$121.89||116.7%|
Source: CapitalIQ, a division of Standard & Poor's; Motley Fool CAPS.
But the fact that 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.
Plan for the worst and hope for the best ties in closely with the aphorism that "those who plan ahead make their own luck." Engine maker Cummins is expecting the torrid growth of emerging markets China and India to cool off this year, but with the very soft landing the Oriental economy experienced to close out 2011, performance could end up coming in much better than expected.
In China alone, Cummins anticipates sales to hit $3.7 billion this year, or around 20% of its total revenue, allowing it to bounce back from the rocky terrain it traveled last year. Yet, with long-standing agreements with OEMs including Paccar and Ford, as well as partnerships with leading engine technology companies like Westport Innovations (NAS: WPRT) , Cummins has enough diversity to weather even the financial crises currently gripping European capitals. The natural gas-tech partnership with Westport has really started to blossom, joint venture revenue grew 60% in the third quarter. Emerging markets are key to its future -- so while the U.S. represents 36% of revenues, China, India, and Brazil account for another 23%.
With the trucking industry finally seeing some open road in front of it, CAPS member MotleyViking sees the engine maker being able to take advantage of trends here at home as well as abroad.
Cummins is perfectly positioned to take advantage of the cyclical demand for trucks. Aging truck fleets will need to be replaced, and the geographic diversity in [Cummins'] revenue mix is an added security blanket to the current global volatility. I like [Cummins] over the next 3 years. With accelerating dividend growth and a stock buyback program in place, [Cummins] will easily outpace the market.
Add Cummins to your Watchlist to be notified if the terrain suddenly changes or its plans to remain on the autobahn of recovery come to fruition.
Iron clad agreements
As long as you realize Great Northern Iron Ore is not a "set-and-forget" investment, its rock-solid dividend that currently yields just under 19% is an attractive hook for investors. You just need to remember the clock is ticking here and in just three years the trust will be dissolved.
When it was founded in 1906, the agreement said the trust would last for 20 years after the death of the 18 heirs of the company's founder. That last member died on April 6, 1995, putting in motion the "doomsday clock" to go off in 2015. For those wanting a longer horizon, Mesabi Trust (NYS: MSB) might be a better bet.
Like Great Northern, it also derives its riches from the mining of ore in the Mesabi Iron Range, with its biggest stake being its Peters Lease. Its trust runs for 21 years after the death of the last of the 25 people named in the trust, the youngest of whom is roughly 50 years old. Presumably it will last a few years longer than Great Northern, and Mesabi's dividend currently yields 8.9%.
While the broader CAPS community is evenly divided over whether Great Northern will beat the Street (certainly not, long-term), almost two-thirds of the All-Stars weighing in see its ultimate demise as weighing on its stock price sooner rather than later.
Mine the Great Northern Iron Ore CAPS page for more opinions on its future, and put it in the Fool's free portfolio tracker to see who will gain the most over the next few years.
Count to 10
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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 Ford Motor.Motley Fool newsletter serviceshave recommended buying shares of Westport Innovations, Ford Motor, PACCAR, and Cummins; and creating a synthetic long position in Ford Motor. 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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