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It's time to update your expectations.

Now that most companies have filed away their 2010 financial performances, we can begin diving into fiscal projections for this year -- and for 2012.

It's no longer a stretch. The term "next year's earnings" now refers to 2012, and you may be amazed at how quickly some of the market's seemingly overpriced players are growing. Loftier profit targets translate into lower forward P/E multiples.

Try on a few of these stocks on for size.



2011 P/E

2012 P/E

My Watchlist

Sirius XM Radio (Nasdaq: SIRI  ) $1.77 59 30 Add
Baidu (Nasdaq: BIDU  ) $124.06 50 34 Add
Google (Nasdaq: GOOG  ) $569.99 17 14 Add (Nasdaq: PCLN  ) $463.61 25 20 Add
Intuitive Surgical (NYSE: ISRG  ) $327.79 30 25 Add

Source: Yahoo! Finance.

Valuation is only a number
Many of these multiples -- even those clocking in for next year -- are chunky. You don't often hear something along the lines of "this stock is so cheap that it's trading for a mere 34 times next year's projected profitability."

Then again, there is more to this basket of presumably pricey stocks than meets the cynical eye.

It's easy to dismiss Sirius XM as a speculative company with a fanatical cult following. Take a few steps back, though. Did you even know that the stock is profitable these days? Analysts see adjusted net income of $0.03 a share this year, doubling to $0.06 a share come 2012.

A handful of pennies may not seem like much, but it does when you have more than 6 billion shares outstanding. The stock closed at $1.77 yesterday, so a 2012 earnings multiple just shy of 30 is a pretty big deal for Sirius XM. It may not be growing its top line anywhere near that multiple, but widening margins and tax loss carry-forwards will make the most of the company's expanding profitability.

Baidu is China's leading search engine. The stock has been a 12-bagger since bottoming out after a November 2008 advertising scandal, so surely the dot-com darling has to be ridiculously overvalued. Right?

Well, not exactly. Baidu commands the highest 2012 multiple on my list, but it's also growing considerably faster than that. Revenue and earnings grew 94% and 171%, respectively, in its latest quarter. It's not a sustainable rate. The pros see net income per share climbing just 62% this year and 46% next year, but this is also a company that has blown past Wall Street's bottom-line targets every single quarter during the past year.

China notwithstanding, Google is the global leader in search. Big G turned heads when it managed to grow during the recession that tripped up so many fallen dot-com darlings. Google's growth has slowed over the years, but it's still a bargain packing an earnings multiple in the teens.

Priceline has been the darling of travel portals. The one-two punch of its "name your price" deal-seeking platform and its more conventional agency features has made a one-stop shop for many aspiring travelers.

Priceline isn't as exotic as the country-specific portals, but China's (Nasdaq: CTRP  ) and India's MakeMyTrip (Nasdaq: MMYT  ) fetch higher multiples. The 2012 multiple of 20 is also likely underestimating reality. Priceline has topped Wall Street's guesstimates for 19 quarters in a row. It's a streak you don't want to bet against.

Intuitive Surgical is the company that's reinventing the operating room with its surgical robotics. This is the only stock on my list that is growing at a slower clip than its forward P/E ratios. The pros see revenue and earnings climbing in the high teens in 2011 and 2012. However, Intuitive Surgical's technological merits deserve a market premium. Things will get better once hospitals have the means to update their surgical tools.

Adding it up
None of these stocks are immune to a market meltdown. If you're looking for bulwarks, you'll have to find them somewhere else.

These investments are high-beta growth stocks, and will likely remain that way for several more years. The key here, though, is that they aren't as expensive as pundits make them out to be.

It's the opportunity that you didn't know that you were waiting for.

Interested in reading more about any of these stocks? Add them to My Watchlist to find all of our Foolish analysis. And if you like these five stocks, check out the six stocks that Tom and David Gardner think you should be watching in a free special report.

Baidu, Google, and Intuitive Surgical are Motley Fool Rule Breakers recommendations. is a Motley Fool Stock Advisor choice. is a Motley Fool Hidden Gems pick. The Fool owns shares of Google, which is also a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.\

Longtime Fool contributor Rick Munarriz also believes that expensive stocks can get even more expensive, too. He does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (9)

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 March 15, 2011, at 11:38 AM, jimmy4040 wrote:

    Be careful on Google. I own it myself, but it seems to have lost the market's faith in their leadership.

  • Report this Comment On March 15, 2011, at 12:31 PM, TMFBreakerRick wrote:

    Jimmy, I hear you on Google. It's more of a mature growth stock these days. However, I can't recall Big G EVER fetching a mere 14 times next year's earnings. As long as Google continues to grow financially, I believe the stock will follow.

  • Report this Comment On March 15, 2011, at 1:03 PM, fun2bretired wrote:

    I own Baidul Always like reading and hearing about it. Looking forward to a great year.

    Is Baidu Still a Hot Investment?

  • Report this Comment On March 15, 2011, at 2:23 PM, vesprito01 wrote:


    NEXT AT $ 1.02 , $ 1.25, $ 1.37, $ 1.50 ,1.74, 1.88 . MILLIONS OF US KEPT BUYING AND MAKING MILLIONS $$$$$$$$$$. LAUGH THAT OFF.

    THAN SIRI INVESTORS WERE ACCUSSED OF BEING Emotional Investing: The Case of Sirius XM .????????

    With the expected company growth of 1.4 mln in 2011 and over 70 mln cars by 2015 to have satellite radio in their car , Plus the most recent qtr. included $ 85.4 mln in dept. extinguishment . The stock is over $1.80 Makes your latest non value added comment even more ridicules at the least.

    Let me help you turn this negative as usual assessment to a positive.

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