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 them "three-digit stocks," but 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 earns the greatest confidence from our investor intelligence database:
CAPS Rating (out of 5)
Return on Capital, TTM
Sherwin-Williams (NYS: SHW)
VMWare (NYS: VMW)
Source: S&P Capital IQ; Motley Fool CAPS. TTM = Trailing 12 months.
But just because these stocks are purring is no reason to jump into them blindly. Catching a tiger by the tail 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.
Painting a pretty picture
Paint specialist Sherwin-Williams continues chugging along, now having risen more than 55% since late September, when shares reached their nadir, having dipped below $70 a stub. Its most recent quarterly results played out pretty much like those of the third -- and the second, and the first. Rising input costs eroded margins, but higher revenue, primarily the result of price increases imposed to offset the costs and acquisitions it made, helped them soar higher. The company also bought back shares for the 42nd consecutive quarter.
I'll admit that I expect a lot more trouble, as Sherwin-Williams lost Wal-Mart as a customer to Akzo Nobel. But the company is expanding internationally, getting particularly good coverage in Latin America (it created a whole new segment devoted to it), and it continues to invest in its paint stores group.
Still, the stock has always looked expensive to me, particularly with the housing market still in limbo. And at 16 times earnings estimates, it is pricier than peers Valspar and RPM Industries, each at 14 times estimates, and PPG Industries, at less than 12 times forward earnings. Yet despite having been wrong all the way up, I'm sticking to my guns, painting Sherwin-Williams red and rating it to underperform the market on CAPS.
Not jcesarek, though, who sees instead a company brimming with possibility: "The confidence of this company and thier employees, who basically own the company will outpreform thier wallstreet goals and their competition as they have for the last 30 because that's what they do."
Add the painter to your watchlist and let us know in the comments section below, or on the Sherwin-Williams CAPS page, which side you fall on.
A new star in the firmament
Every new technology platform creates not just winners, but giants of the industry. One of the more hotly contested areas now is in the cloud, where platform as a service has attracted the usual participants like Microsoft, as well as Rackspace, Amazon.com, and VMWare. VMWare's Cloud Foundry is an application platform that provides space for multiple SaaS apps that make it faster and easier to build, test, deploy, and scale applications.
But the virtualization of an enterprise's entire infrastructure is coming, whether it's on the desktop or in your pocket with a mobile device. Motorola Mobility (NYS: MMI) is teaming with VMWare to develop enterprise-ready phones that will use its hypervisor to include virtualization with business devices that switch between corporate and personal use, protecting one from the other.
VMWare has climbed 38% from its December lows, and despite trading at nearly 60 times trailing earnings, it produces such prodigious amounts of free cash flow that the Fool's Rich Smith still sees it as an undervalued stock, given its growth rate.
Nearly 2,300 CAPS members have taken a stance on how well it navigates the cloud, and 92% believe it will outperform the market. CAPS member subsurfacemapper sees its success embedded in the symbiotic relationship of commuting between work and home, but All-Star tallenuk sees all this talk of the cloud as much ado about nothing. That seems to echo the views of Oracle CEO Larry Ellison, who criticized pundits as having hijacked the term to include just about anything that occurs on the Internet.
Put VMWare in the Fool's free portfolio tracker to watch what lofty level in the clouds it ascends to next.
Count to 10
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At the time this article was published Fool contributorRich Dupreyowns shares of Oracle, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Oracle, Berkshire Hathaway, Wal-Mart, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Berkshire Hathaway, Microsoft, Wal-Mart, Rackspace Hosting, Sherwin-Williams, and VMware, as well as creating a bull call spread position in Microsoft and a diagonal call position in Wal-Mart. 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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