I asked a group of Fool analysts to name one stock they like, but believe to be too expensive at current prices. Should their prices fall, here are three ideas worth keeping an eye on.
Bryan Hinmon, Motley Fool analyst: Out of personal preference, I try only to invest in companies that are ugly or boring -- it guards against falling in love with an investment and falling asleep at the wheel. But I have always admired Expeditors International of Washington
As for Expeditors the business, it matches up air and freight shipments with shippers who have capacity. It's like putting together a complicated puzzle made of pallets and boxes. The economics of the business are great. Expeditors is capital-light and generates high returns on capital. As a result, it has a healthy balance sheet. While Rose has plenty of ammunition for analysts, he treats employees well.
For a business of this quality, though, one must pay a price. Expeditors shares currently go for 30 times trailing earnings and commonly trade at multiples above 35, which makes me cringe. Although competing third-party logistics firms UTi Worldwide
Jason Moser, Motley Fool analyst: Freddy Krueger might take a shine to a company I have recently been researching. Haemonetics
While it does compete on some level with bigger players like Baxter
Another attractive quality of the business is that it is a razor-and-blade type of model. Once the company is able to sell the equipment to the hospital or blood bank (the razor), it then realizes recurring sales of the single-use disposable devices that go with the equipment (the blades). And Haemonetics isn't stopping there. It is also developing a laser-based blood typing system that should open up new growth opportunities.
Thanks to health-care legislation, a growing population with greater access to health care means a bigger market to serve. And with additional exposure (the company markets and sells its products in more than 80 countries worldwide) to emerging markets, where health care standards continue to improve, Haemonetics has some real growth opportunities ahead. Now if I could just get it under $50 ...
Alex Pape, Motley Fool analyst: You probably can't taste the difference between triple- and quadruple-distilled rum, but I bet you are willing to pay more for a bottle of Captain Morgan's than knock-off Admiral Nelson's, despite the humor value. That's because when it comes to brands, premium liquor has some of the stickiest. British-based Diageo
Diageo distills and distributes its products around the world, without any over-dependence on any particular region. Diageo has the largest market share by volume in the industry, with a strong presence in many of its segments. Its largest competitor, Pernod-Ricard, has 11%, but many of its competitors, including Brown-Forman
As you can probably tell, I love Diageo's business. I just can't bring myself to buy it at recent prices. All those sticky brands and that market dominance have made Diageo expensive. The current price around $63 seems to assume that the company will continue to grow its share of the liquor cabinet at the torrid rate of the past decade. Yet while there is some room for growth there, I think the low-hanging fruit has already been snatched up, so future gains in market share should be diminishing. On the plus side, though, Diageo's stock price has been volatile the last few weeks, so a lower buy-in could be just around the corner.