Expensive Stocks Worth Buying: When attempting to establish a diverse investment portfolio, it can be tempting to simply focus on the cheaper stocks in order to create a robust roster of stocks at a relatively low price.
While opting for a wide range of low-cost shares might seem like an easy opportunity to kill two birds with one stone, it’s not a bad idea to consider at least some of those pricier stocks. As it turns out, they’re often expensive for a good reason.
When one stock is selling for $100 and one is selling for $5, it’s much more tempting to buy 20 shares of the $5 stock than one share of the $100 stock. However, in the grand scheme of things, you’ll never be able to get a piece of the most dependable, most successful companies in the world unless you’re willing to take a bigger bite of the pie.
Besides, this urge to go for the stock that will give you the most shares for your money is inherently flawed: $100 split into 20 shares versus $100 in one share still comes out to be $100. What matters most is the valuation not the price. Here are five great examples of expensive stocks worth buying.
Amazon (AMZN) Trading At 13x Prime Revenues
Since going public in 1997, Amazon’s stock price has been steadily and dependably rising with turmoil over the course of those nearly 25 years on the New York Stock Exhange generally limited to periods when the overall market is tumbling.
After debuting at a price of under $2 a share, Amazon has since skyrocketed to over $3,250 a share. While that price has experienced somewhat of a plateau since July of 2020, not exceeding $3,500 a share but not dipping below $2,900, it’s not too outlandish to assume that Amazon will eventually break free from this trend and continue its upward climb.
If this isn’t convincing enough, take a look at Amazon’s P/E ratio: 62x. This means that Amazon is trading at more than 62 times its earnings. For context, the S&P 500’s P/E ratio typically ranges from 13 to 15. But Amazon has always traded at a lofty P/E multiple. Another metric might be more helpful to understand whether the company is fairly valued.
It turns out that Amazon is trading at about 13x its Prime member revenues. Hardly lofty! Think about it, what are the chances an Amazon Prime member quits the service on any given year? It’s probably low. The lifetime value of Amazon Prime members could very reasonably be 13 years, suggesting Amazon is potentially very steeply undervalued.
Restoration Hardware (RH) New Strategy A Winner
In the years that followed being founded in 2011 and going public in 2012, Restoration Hardware has had a solid grasp on the trendy furniture market. With just 30+ stores scattered across the country and a high price point to essentially guarantee a certain wealthy clientele, Restoration Hardware continues to grow more and more popular while RH share price continues to grow more and more valuable.
Restoration Hardware shows no indication that they will suddenly go out of style overnight. Quite to the contrary, RH management have initiated a new strategy to couple their stores with luxurious experiences such as top class cafes and eateries at their flagship New York store. The strategy is working gangbusters with more throughput per store and higher spending.
Alphabet (GOOG) Fair Market Value Has Upside
Alphabet, Inc. was the name given to the parent company created to oversee Google, Fitbit, Calico, and a whole roster of other brands in order to ensure more transparency back in 2015.
Luckily for investors, this major switch-up at the top of the company’s hierarchy had no negative impact on the price of their shares. As a matter of fact, Alphabet stock just keeps going up.
From March of 2020 to April of 2021 alone, Alphabet’s stock has risen from about $1,000 a share to over $2,300 a share.
While this is impressive in its own right, even that $1,000 price point signified massive earnings potential — especially considering Alphabet’s stock (technically Google’s at the time) went for just over $50 a share back in 2004.
Today, Alphabet’s fair market value resides at around $2,600 per share. A discounted cash flow analysis forecast suggests there’s more upside to this FAANG stock despite it’s already massive run higher.
Google and its sister companies represent a tech giant that isn’t going to be fading away anytime soon and will likely only continue to increase in value in the coming years.
Chipotle Mexican Grill (CMG) Is A Powerhouse Stock
When considering expensive stocks worth buying, the mind tends to drift towards the aforementioned and the like: Amazon, Google, and the other monumental companies and figures that define our current era.
For this reason, something like, say, Chipotle Mexican Grill might not be the first thing that pops into your mind as a potentially lucrative investment opportunity (unless, of course, you’re hungry). You might want to reconsider, though: as many restaurants fall by the wayside due to fallout from the coronavirus, Chipotle continues to be something of a powerhouse on the New York Stock Exchange.
Since going public in 2006, Chipotle’s stock has risen from just over $42 a share to over $1,400. From a valuation perspective, Chipotle has upside potential to $1,685 per share based on a discounted cash flow forecast analysis.
Historically, the share price volatility has lessened over time, so CMG share price offers both upside and historically steady movement – coupled they are attractive qualities to most investors.
MercadoLibre (MELI) Has 175 Million Active Users
Easily the least recognizable name of this batch of five expensive stocks worth buying, especially up against names like Amazon, Google, and Chipotle, MercadoLibre is incorporated in the United States but operates its online auctions and e-commerce marketplaces all over the globe.
Just because they might not be a household name here in America doesn’t mean that they aren’t worth considering, though: MercadoLibre has nearly 175 million active users throughout Latin America, which would equate to over half of those in the United States.
MercadoLibre got as close to $2,000 a share as it’s ever been back in January of 2021 when they hit $1,984, then dipped down to the $1,300s in Q1 2021.
This upward growth is projected to fare incredibly well for MercadoLibre in the months and years to come, with many predicting a potentially enormous P/E ratio in the next couple of years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.