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 following high-priced stocks earn the greatest confidence from our investor-intelligence database:

Stock

CAPS Rating (out of 5)

3-Digit Price

Return on Capital, TTM

salesforce.com (NYSE: CRM  ) * $155.00 (1.1%)
Under Armour (NYSE: UA  ) **** $100.45 16.1%

Sources: S&P Capital IQ; Motley Fool CAPS.

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.

Highfalutin' honeys
After a horrendous 2011, where analysts suspected that it lost nearly half of its CRM market, with its European business almost completely decimated, salesforce.com has rebounded sharply, and its stock is up 53% year to date by posting results that surprised Wall Street. European sales were up 40% in 2011, and the CRM specialist said earlier this year that just because Oracle (Nasdaq: ORCL  ) , IBM, or SAP may or may not have a rough go of it because of the financial problems rampant there, that doesn't mean it is.

But investors have long been wary of Salesforce because of its aggressive accounting practices. While the cloud-computing company says it's a different kind of business that deserves special treatment, somehow things never seem to really be different in the end.

Regardless, trading at 75 times earnings estimates, however you calculate those profits, means it's not cheap. Oracle is gaining ground in the space, having bought RightNow to compete with Salesforce, and at less than 11 times estimates, it's far cheaper and less risky than its rival.

CAPS member bossman5000 thinks its valuation is seriously out of whack to its business, a point jwray01 agrees with while noting that there's nothing that really makes Salesforce stand out from the crowd to warrant such lofty prices.

Ridiculously high P/E. Their product is an unremarkable commodity with a plethora of competitors. They will never be very profitable. I would short it.

Since markets can be irrational for very long periods of time, I probably won't short Salesforce's stock, but I did mark it to underperform the indexes over the next few years. Add the CRM leader to your Watchlist, and then let us know on the salesforce.com CAPS page or in the comments section below whether you agree with us naysayers.

Constructing a new future
Are the vaunted inventory issues at sports clothing maker Under Armour (NYSE: UA  ) taking a toll on its profit margins, even as it beats analyst estimates yet again? Being overstocked has been a continuing problem at the athletic-gear company, and its CEO has said getting it under control is one of his priorities, and while the gap between inventory growth and sales growth narrowed, there is still a wide chasm. Sales were up 23% in the quarter, while inventory grew more than 30%, with gross margins falling 80 basis points, indicating that it's an elusive target to get in its sights.

I see some other worrying trends, too, such as Under Armour's rising debt levels, falling cash balances, and a narrowing of guidance for the full year to the lower end of its previous expectations. While 21% to 22% growth is commendable, it is a little less exuberant than before.

Footwear sales last year surged 43% but in the first quarter came in just 24% higher this time around, though admittedly it was better than Nike's (NYSE: NKE  ) 15% jump. Still, moving a company that's producing almost $6 billion in quarterly footwear sales 15% higher is different from a 24% increase in a $64 million segment, as Under Armour did. Further, overall first-quarter sales growth slowed compared with the year-ago period's jump of 36%. With cotton prices expected to remain elevated, I can't see how a clothing maker escapes a further erosion of margins.

While Under Armour remains a popular company with investors, I'm still leery about its prospects, so I'm rating it to underperform the indexes. I'm admittedly in the decided minority, where 97% of the All-Star CAPS members rating the gear maker expect it to put its footwear someplace deep in analyst expectations, but tell me in the comments section why my concerns don't have legs. Then add Under Armour to the Fool's free portfolio tracker to see whether it kicks it next quarter, too.

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.

Fool contributor Rich Duprey owns shares of Oracle and Nike, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Oracle, Under Armour, and IBM. Motley Fool newsletter services have recommended buying shares of salesforce.com, Under Armour, and Nike, creating a bear put spread position in salesforce.com, and creating a diagonal call position in Nike. The Motley Fool has a disclosure policy. We Fools don't 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.


Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 25, 2012, at 5:06 PM, raf55 wrote:

    "there's nothing that really makes Salesforce stand out from the crowd to warrant such lofty prices."

    what it may warrant can be debated but the crowd cannot say:

    --they are #1 in every customer satisfaction survey and have been for years

    --they have a complete mature app platform, and data centers worldwide

    --outsiders are spending hundreds of millions developing apps for their AppExchange

    --their apps are ready to run on mobile devices

    --their apps integrate with social networks

    --their product line is expanding rapidly

    --they have a smooth routine for new releases

Add your comment.

DocumentId: 1870055, ~/Articles/ArticleHandler.aspx, 4/20/2014 12:27:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement