Bargain Hunting in High-Priced Stocks

10/21/2016 8:00 am EST


George Putnam

Editor, The Turnaround Letter

Bargain-hunters will often look at low-priced stocks (those with share prices under $5, for example), curious about whether the low price makes them cheap, adds George Putnam, editor of The Turnaround Letter.

We were recently asked the opposite question: does a high stock price indicate that a stock is expensive? In this case, as well, we have the same perspective: it all depends on the valuation rather than the per-share price. 

We looked through a roster of dozens of stocks with prices above $100 and highlight these:

Blackrock (BLK) is the world’s largest asset manager with nearly $5 trillion in assets under management. 

Its 2009 acquisition of the iShares ETF business for $13.5 billion looks like a real bargain as ETFs continue to draw in hundreds of billions of dollars in assets.

While new competitors look to capture some of Blackrock’s market share, the company’s highly innovative and successful culture provides an enduring competitive edge.

Its rapid growth puts next year’s P/E multiple at an attractive 16.6x, and its shares pay a respectable 2.5% dividend yield.

Goldman Sachs (GS) remains a premier financial services powerhouse. Its traditional trading and deal-advice businesses are somewhat constrained by lower activity and margins, and it faces continued regulatory hurdles.

However, it has a remarkable ability to find new avenues for long-term profit growth has led it toward asset management, commercial and retail banking and financial technology engineering. Goldman’s future is likely much brighter than the market’s current view.

IBM (IBM) has struggled in recent years to re-ignite its revenue and profit growth, as customers increasingly shift their computing to the cloud.

The company is working to re-align itself to this new reality, including developing its own cloud offering and promoting its analytics capabilities. 

While these initiatives face an uphill future, IBM’s immense and profitable core business is not going away any time soon.  The 3.5% dividend yield helps patient investors during IBM’s transition.

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By George Putnam, Editor of The Turnaround Letter

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