One of the greatest fears of many investors is the potential for buying a stock at its peak share price. After all, the oft-repeated idea of buying low and selling high makes sense on the surface. But all too often -- and while it might seem counterintuitive -- the best deals are companies whose stocks have a strong history of share-price appreciation.
That's not to say finding those deals is easy. So to help get you started, we asked three top Motley Fool contributors to each pick a stock trading near its 52-week high that they believe investors would be wise to buy this month. Read on to see why they chose Activision Blizzard (ATVI), Adobe Systems (ADBE 1.25%), and JPMorgan Chase (JPM -1.54%).
Image source: Getty Images
Investing in the future of gaming
Steve Symington (Activision Blizzard): Shares of Activision Blizzard popped more than 16% in a single day last week, touching an all-time high after the company's record fourth-quarter 2016 report. But despite drawing 447 million monthly active users (MAUs) last quarter, and having consumers spending an incredible 43 billion hours playing and watching Activision Blizzard content last year, I think the video-game titan is only just getting started.
For one, Blizzard achieved record fourth-quarter MAUs of 41 million. Overwatch became Blizzard's fastest-ever game to reach more than 25 million players globally, breaking the previous launch-year record for unit sales set by Diablo III in 2012. And even Blizzard's established World of Warcraft franchise managed to grow MAUs 20% year over year during the quarter, with the help of its new Legion expansion.
Meanwhile, the Activision studio set its own record with 51 million MAUs in Q4, as Call of Duty capped its eighth consecutive year as the world's No. 1 console franchise. Activision also began to spread its wings last quarter with the debut of its new Skylanders Academy TV series through a partnership with Netflix.
One point of potential concern: MAUs at mobile gaming specialist King Digital -- which Activision Blizzard acquired for $5.9 billion early last year -- declined slightly on a year-over-year basis in Q4, to 355 million. But even then, King Digital simultaneously drove better per-user engagement and investment and still commanded two of the top 10 highest-grossing mobile app store titles for the 13th straight quarter -- an extraordinary demonstration of relative stability, given the ebbs and flows of the often fickle mobile gaming space.
All told, revenue last quarter grew 49% year over year, to $1.45 billion, while adjusted earnings per share rose 160%, to $0.65. Activision Blizzard also generated 71% growth in operating cash flow last year, to $2.2 billion; increased its annual dividend by 15%, to $0.30 per share; and approved a new two-year, $1 billion stock repurchase plan. Add to that the potential for incremental revenue from other growth initiatives, including integration of in-game advertising, e-sports, and consumer products, and I'm convinced Activision will continue setting new highs going forward.
Rendering beautiful market-beating gains
Tim Brugger (Adobe Systems): Following a slow but steady increase in its stock price since it announced record quarterly and fiscal 2016 revenue on Dec. 15, Adobe is still at or near its 52-week high of $116.90. Not exactly a value investor's dream, right?
But when investors consider how Adobe has consistently posted strong results, it becomes apparent that CEO Shantanu Narayen had it right all along. Narayen took a gamble: He shut down Adobe's software sales approach and focused on a more sustainable subscription model. Die-hard Adobe Photoshop users weren't amused, but fast-forward to the present and those same fans are kicking themselves if they didn't buy Adobe stock.
Adobe ended fiscal 2016 with record revenue of $5.85 billion, and that's not even the best part. Of those sales, nearly 70% -- $4 billion -- were generated by the subscription-based annualized recurring revenue (ARR) from its Digital Media unit. Last fiscal year's ARR was a 28% improvement over 2015.
The emphasis on ARR offers several advantages to investors, not the least of which is that it builds a relatively reliable, and predictable, sales foundation. That equates to fewer wild quarterly revenue fluctuations, which in turn limits Adobe stock's risk because if its relative stability. It's also less costly to service existing customers than rely exclusively on new sales. Not surprisingly, Adobe's expense increases are well below its top-line growth.
Adobe shares are up 53% in the past year and over 12% in 2017, and it's absolutely still worth buying.
This Wall Street bank has more room to run
Dan Caplinger (JPMorgan Chase): The financial sector has been one of the biggest winners in the aftermath of the presidential election in November, and in the opening weeks of the Trump administration, the new president has already issued an executive order that will have the end result of reducing regulation on big banks. That's great news for JPMorgan Chase, which has already been rising because of anticipation of higher interest rates and the corresponding profit boost for the company's retail banking business.
It isn't certain that Congress will follow through and repeal Dodd-Frank banking restrictions in their entirety. But the potential for JPMorgan Chase to boost the size of its lending portfolio and proprietary trading business could lead to unanticipated profit growth, and already, CEO Jamie Dimon has shown his support for the president's policies on issues ranging from bank regulation to tax reform.
JPMorgan Chase has plenty of risks, and the potential threat of growing tensions in the global economy related to trade could have an adverse impact on its international business. However, few banks have successfully read changing trends better than Dimon and JPMorgan Chase, and as long as the bank keeps its fingers on the pulse of the geopolitical and macroeconomic climate, it has the ability to keep climbing despite its past share-price gains.
