Investors often have a preference for "inexpensive" stocks.
No, this time I'm not talking about valuations. Rather, it's the sheer price level that sometimes keeps investors away from an otherwise perfectly strong business and good investment opportunity.
Most investors prefer dealing in "round lots" of a stock -- that is, share amounts that are measured in hundreds. This simplifies the order-filling and accounting processes. But it's also a psychological thing... many investors see a triple-digit price for a stock and immediately assume it's "expensive," i.e. overvalued.
Of course, not everything is so clear-cut (it would be too simplistic to measure a stock's success by the dollar price of its shares). That's because most companies, when their share prices rise to a certain level, execute a stock split to keep the nominal price from getting out of whack compared with similar companies, and to keep shares liquid and "affordable" to more investors.
A split, as you know, does not impact the overall value of a company (or its shares' valuation). If the price of a share was $10 before a two-to-one split, the new value of a share will be $5.00. The size of the pie remains the same, but there will be more "pieces" outstanding, in proportion to the split ratio.
A two-for-one split, therefore, doubles the number of shares outstanding and reduces share-price in half. By so doing, despite all the action, the market capitalization of the company stays the same.
Whether to split or issue additional shares is up to a company's board of directors. Amazon (Nasdaq: AMZN) -- a stock that closed (as I write this) at $1,819.19 -- has chosen not to split its shares for the past two decades (the last time this stock executed a split was 1999, the height of the dot-com boom). And thanks to its incredible success as a dominant online retailer and cloud tech company, the stock has risen many hundreds of percent since then. The fact that AMZN has not split for 20 years does not make it a less attractive stock (although, in all likelihood, most investors must settle for buying odd lots of this stock). For a company with a market cap approaching $900 billion, liquidity is not an issue.
There are several more stocks that trade at high nominal prices that are possibly being overlooked by investors. Here are a few (rated as "buys" by analysts and trading at a price of $300 per share and above)...
Not every stock on this list belongs to the "no-split" group.
1. Intuitive Surgical (Nasdaq: ISRG), the robotic surgery pioneer, currently trades above $470 per share. In 2017, after its robots really started catching on and after a regulatory win (in May of that year, ISRG won FDA approval for its next-generation, lower cost surgical robot called da Vinci X), the company executed a three-for-one split.
The high price ISRG trades at today is a direct result of the company's enormous success in the robotic surgery space. And analyst ratings reflect this success -- despite the high share price. Ten analysts call ISRG a "Buy," four rate it "Outperform," four rate it "Hold" and only two rate it a "Sell" at today's levels.
2. Formerly known as Priceline, Booking Holdings (Nasdaq: BKNG) trades at nearly $1,700 per share. This company, one of the earliest entrants into the online travel market, has become known for the "name your own price" policy and is now the unified source for all things travel. But it wasn't always a success.
Unlike most high-priced stocks, BKNG had, at some point, traded so low that the company had to execute a reverse split (often regarded as a desperation tactic that reduces the number of shares and increases the share price proportionately). One of the internet pioneers, Priceline went public in early 1999, and -- like many dot-com stocks of that era -- doubled quickly before losing 99% of its value in less than two years, as the Nasdaq crashed.
In 2003, Priceline executed a one-for-six reverse split, which got its share-price above $20. Since then, and especially in the past 12 years, the company has made it back, and then some, thanks to its strong brand-building efforts and winning over the competition in the online travel field.
Out of 33 analysts, 17 rate BKNG a "Buy" or "Outperform," 16 rate it a "Hold" -- and none rate it a "Sell."
3. Not to be overlooked, Bio-Rad Laboratories (NYSE: BIO) trades just under $300 per share. The company, which develops, manufactures, and markets products and services for the life science research and clinical diagnostic markets, has been around since 1952.
Over the past two decades, BIO split its stock only once, in March of 2002. Out of three analysts following the stock, two rate it a "Buy" and one gives it an "Outperform" rating.
4. Amazon (Nasdaq: AMZN) is another stock that should not be overlooked, despite a share-price approaching $2,000. Out of the four stocks mentioned, it's also the highest-rated: 34 analysts rate it a "Buy" and 12 rate it "Outperform." There are no "Holds" or "Sells" for Amazon at this time. And, as you probably know, even Warren Buffett, arguably the most successful investor alive -- and well-known for his penchant for value -- has recently disclosed a new position.
Action To Take
A high share price is, clearly, not a reason for Buffett to ignore a stock like Amazon -- and neither should it become an obstacle for individual investors.
That said, the stocks I've mentioned here are simply ideas for you to take and do further research on your own. They are not official "buy" recommendations for my premium newsletter service, Fast-Track Millionaire.
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