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3 Stocks at 52-Week Highs Still Worth Buying

By John Rosevear, Chuck Saletta, and Cory Renauer - Updated Oct 10, 2017 at 1:33PM

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Sometimes, the stocks making new highs are just beginning to take off.

Investors are often wary of stocks trading at or near new highs. That's understandable: If a stock has recently had a big run-up in price, it's easy for investors to feel that they've missed the boat -- or put another way, that there's nowhere to go but back down.

Sometimes, though, a stock trading at a new high is just beginning its run-up. A new high might be a buy signal, a sign that something has recently changed for the better.

Of course, you need to look closely to confirm that the growth story is just beginning. We asked three Foolish investors to name stocks that they think are worth a close look right now. Here's why they think General Motors (GM 1.35%)Celgene (CELG), and Citigroup (C 1.91%) still have a lot of growth left, despite their recent price surges. 

A "legacy" company set to out-disrupt the disruptors

John Rosevear (General Motors): Sometimes, a "legacy" company that looks ripe for disruption by new technologies ends up being the one to disrupt itself -- and others. It's not common, but when it happens, it can be quite an opportunity for investors.

A Chevrolet Bolt EV with self-driving sensors visible is parked next to GM's historic Design Dome in Warren, Michigan.

The self-driving car that changes the world could well be this little electric Chevrolet, built by GM in Michigan. Image source: General Motors.

So let's talk about General Motors -- yes, that General Motors. GM's shares have risen almost 30% over the last three months, as investors have seen more and more signs that the General isn't playing its part in the auto industry's disruption story. 

GM's shares are trading close to their highest point since GM's post-bankruptcy IPO in 2010. But this run might be just the beginning. Consider what has happened over the last year or so:

  • GM began mass production of the world's first affordable long-range electric vehicle (the Chevrolet Bolt EV) last December, beating Tesla to market by several months (and everyone else by more). 
  • GM confirmed last week that it will follow up the Bolt with at least 20 new all-electric models by 2023. The first two will go into production within 18 months. 
  • Kyle Vogt, CEO of GM's self-driving subsidiary Cruise Automation, said last month that Cruise now has a self-driving Bolt that is ready for mass production. These latest autonomous Bolts are expected to join Cruise's fleet in San Francisco within weeks, and to roll out more widely in the coming months.
  • GM owns a substantial stake in Lyft, but there are signs that it's planning to launch a rival ride-hailing service via its Maven subsidiary. It seems likely that self-driving Bolts will play a key role for one or both soon.

All of this new tech is expensive, of course. With many disruptive entrants, investors wonder if the cash to realize the vision will appear. Not so with GM: GM's "legacy" business is delivering fat profits thanks to strong demand for GM's new line of crossover SUVs.

And while it has had a great run recently, GM's stock is arguably still cheap, at just 7.6 times expected 2017 earnings, with a sustainable dividend paying about 3.5%. 

Long story short: There's a very good story unfolding for GM, and there's still time for investors to jump in. 

Still cheap looking forward

Cory Renauer (Celgene): This biotech stock has had a huge 40% run-up this year, but it's standing on the edge of another growth spurt that still makes the stock look cheap from a forward-looking perspective. Celgene's bottom line has grown by about 25% per year for the last five years and is expected to continue at a 22% rate for the next five years.

Celgene's flagship multiple myeloma therapy, Revlimid, is on pace to top $8 billion in sales this year as it heads for the top spot on the global list of top-selling cancer drugs. More recently launched blockbusters, are doing their part to move the needle forward as well. Second-quarter sales of Pomalyst and Otezla jumped 23% and 49% higher, respectively, than the same period last year, putting the pair on pace to contribute a combined $3 billion to the top line this year.

Celgene's outstanding product lineup throws off a lot of cash that the company has used to assemble a cornucopia of clinical-stage new-drug candidates through a staggering array of acquisitions, licensing, and partnership deals with smaller biotechs. Ozanimod, a possible treatment for multiple sclerosis, has megablockbuster potential, and it's just one of 10 drugs in development that could eventually generate more than $1 billion in annual sales.

Granted, Celgene doesn't look cheap with a trailing P/E ratio of 45.4, but a look forward suggests the stock is worth every penny right now at just 16.4 times 2018 earnings estimates. With a strong pipeline poised to keep moving the needle forward for at least another decade, this biotech is still a buy despite this year's run-up.

A banking giant with a still-reasonable price tag

Chuck Saletta (Citigroup): After last decade's financial crisis, many of the weaker banks took a while to recover. Citigroup was one of those banks. It was not allowed to lift its dividend above $0.01 per share per quarter until 2015. Additionally, it took until earlier this year for the bank to appear operationally strong enough to really start restoring that payment. 

That slowness in operational recovery meant that Citigroup's shares also took longer than many other banks' did to recover. As a result, despite the fact that its shares currently trade near their 52-week highs, Citigroup still looks value-priced enough to consider buying today. There are a few reasons for that optimism.

First, Citigroup still trades at just below its book value. Banks that emerged more quickly than Citigroup did from the grips of the financial crisis sport valuations at a multiple well above 1.0. Second, Citigroup trades at less than 15 times trailing earnings and less than 13 times expected forward earnings. Third, now that it has gotten its mojo back, analysts estimate that Citigroup will be able to grow its earnings at a better-than-10% annualized rate over the next five years. 

Whether you look at it from a price-to-book basis, a price-to-earnings basis, or also consider its expected growth prospects, Citigroup stock looks reasonably priced. That makes it worth considering despite the fact that its shares trade near their 52-week highs.

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Stocks Mentioned

Celgene Corporation Stock Quote
Celgene Corporation
Citigroup Inc. Stock Quote
Citigroup Inc.
$46.87 (1.91%) $0.88
General Motors Company Stock Quote
General Motors Company
$32.19 (1.35%) $0.43

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