4 Premium Dow Picks Worth Their High Price Tags

These Dow stocks have the highest forward earnings multiples, but find out whether they actually have the growth to back them up.

Jan 12, 2014 at 9:01AM

The Dow Jones Industrials (DJINDICES:^DJI) hit more than 50 all-time record highs in 2013, pushing many of its components to very lofty valuations. But in some cases, the growth prospects behind those stocks makes even what seem to be premium prices justified. With that in mind, let's take a closer look at Visa (NYSE:V), Nike (NYSE:NKE), Boeing (NYSE:BA), and Home Depot (NYSE:HD) to see whether their shares are really overpriced or whether they have the growth potential that could make their shares look like bargains in hindsight.

Visa leads the Dow with a forward earnings multiple of 24.9, making it look pricey even despite its status as the leading card network in the world. But Visa has done a great job of maintaining high-paced growth, with a 27% average annual growth rate over the past five years and with analysts projecting 19% growth over the next five years. With many calling for the end of cash-based transactions as a needless waste in fees and theft, Visa is well-positioned to take advantage of the continuing trend toward electronic payments.

Nike's forward multiple of 24 makes puts it second on the Dow's list of high-priced stocks, but it too has been in the vanguard of the important high-growth area of athletic shoes and apparel. For decades, Nike has built an impressive world-renowned brand, with a stable of respected athletes providing endorsements and lending their names to high-value products that help drive demand across the globe. With the Brazilian World Cup acting as a global stage for the company, Nike hopes to build its soccer line over rival Adidas and increase its growth rates even further. Still, with analysts only expecting 12% growth for Nike in the next five years, the company needs to eke out every ounce of potential in order to justify its valuation.

Boeing carries a forward multiple of 19.7, which looks high compared with expected growth of around 11% in future years. But Boeing has been cashing in on huge aircraft orders, starting 2014 on the same foot in continuing its dominance of the skies as airlines remain hungry to replace their aging fleets with more fuel-efficient newer models. The big question facing Boeing is whether all these orders are merely accelerating demand that will lead to sluggish prospects in future years. For now, though, the company is doing everything it can simply to make good on its existing commitments, with backlogs that take years for the company to fill.

Home Depot's 19.2 forward multiple is fairly high as well, but analysts have higher expectations of its future growth rates, pegging them at around 17%. The long-dormant housing market is a big part of the reason behind the optimism about Home Depot, as the home-improvement retailer has managed to a good job of holding its own even before housing starting perking up again. If price increases persist, then it could unlock a new wave of pent-up demand for home improvement and renovation projects, giving Home Depot another leg up for its stock.

Don't stop thinking about value
Just because a stock has a high valuation doesn't mean it's not worth paying up for. Looking at the growth prospects for these companies, investing in high-multiple stocks could still turn out well for your portfolio in the long run.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Home Depot, Nike, and Visa and owns shares of Nike and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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