Are These 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" -- stocks that trade for $100 or more -- yet if they're anything like Berkshire Hathaway, they can trade in the four-, five-, and six-digit range, too.
A stock isn't a good buy just because it trades for pennies on the dollar, and a three-digit stock shouldn't scare you away just because it carries a hefty price tag. Regardless of how much it costs, it always comes down to whether the business is well run. We can also check in with the smart set at Motley Fool CAPS to see which high-priced honeys earn the greatest confidence from the investor community.
Yet simply 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 leave you scratched and bleeding.
The fast casual dining concepts sits at the head of the food chain table. The market researchers at Technomic says the $27 billion niche will outpace all other concepts over the next five years, maintaining the lead it's had during the recession. NPD Group says where other concepts have been flat or lost customer traffic, fast casual has witnessed strong, steady growth.
Bellying up to the all-you-can-eat buffet have been top names like Panera Bread (NAS: PNRA) and Chipotle Mexican Grill (NYS: CMG) , which alone feasted on 22% compounded annual revenue growth over the last five years, a pace that is only picking up steam. In comparison, Panera has enjoyed 17% compounded growth while Cosi actually saw a 3% contraction over the same time period.
Analysts are forecasting 22% growth this year for the Mexican food joint and growth of the same scale over the next five years. No doubt eyeing that success has encouraged Yum! Brands' (NYS: YUM) Taco Bell unit to explore a more fast casual environment, even going so far as to bring in celebrity chefs to spice up the menu.
As scrumptious as Chipotle's growth looks, the stock has certainly priced it in as it trades at over $400, or 55 times last year's earnings and more than 36 times estimates. While the chain has long carried a premium, investors like CAPS member bossman5000 call such valuation into question: "Have people forgotten about traditional valuation metrics? A P/E of 60 for a burrito chain? Great short candidate."
More than 3,100 CAPS members have weighed in on the restaurant chain, and 83% see it still outperforming the market. Add Chipotle to your watchlist, then let us know on the Chipotle Mexican Grill CAPS page -- or in the comments section below -- whether investors are being too casual about its valuation.
I see you!
Check out the chart for medical device maker Atrion (NAS: ATRI) and you'll see the risks inherent in companies that rely too heavily on any one customer. The two big drops you see in February and then at the start of May are the result of Novartis (NYS: NVS) cutting back shipments of ophthalmic products.
While Atrion doesn't actually mention Novartis by name, the Swiss health-care products company accounts for 13% of Atrion's sales, and late last year, it bought the eye care specialist Alcon. The February plunge would coincide with Novartis having to get a reckoning on the inventory of product it would now have on hand, and May's drop would indicate the lingering impact.
But Atrion cautions those effects will last a while yet, saying it expects the inventory adjustments to peter out over the course of the year. That may produce weakness in its stock, which is currently priced north of $200. The rest of Atrion's business looks healthy, though, despite the fluid delivery segment easing up in the quarter. It has traditionally been a strong segment for the medical products company.
Yet highly rated CAPS All-Star griderX thinks the inventory issue won't be so transient and suggests it will be a long wait to get back on track, pointing to management's contention that 2013 will be when Atrion sees double-digit growth again.
Tell me in the comments section if you think now would be a good time to add to or start a position, then add Atrion to the Fool's free portfolio tracker to see how long the inventory pile-up lasts.
Count to 10
Both of these companies are set on conquering new worlds, but check out The Motley Fool's free report " 3 American Companies Set to Dominate the World" to get access to detailed analysis of some outsized opportunities you may not have yet considered.
At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Berkshire Hathaway, Panera Bread, and Chipotle Mexican Grill.Motley Fool newsletter services have recommended buying shares of Panera Bread, Berkshire Hathaway, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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