Are High-Priced Stocks Good Value?
Traditional investing wisdom states to buy low and sell high. To expand on this, a value investor typically looks to buy companies that are being undervalued by the market, and sell them when they are trading at something like their appropriate value (or, hopefully, when they are overvalued!)
However, there may be circumstances when a stock that is already trading at a relatively high share price may have more room for growth. Here are a few high-priced stocks and our thoughts on their real value. Keep in mind that all quoted share prices are at the time of writing and are, of course, subject to change.
Seaboard Corporation
This ocean transport and agriculture company is currently priced at a whopping $2,049.00 a share. Why is it so valued? It mitigates risk by receiving U.S. agriculture subsidies, and aggressively expands its operations, not only in Honduras and the Dominican Republic but in the U.S. as well, with the recent acquisition of Butterball Turkey. However, according to Wikipedia, it has been the target of protests by indigenous communities and Nobel Peace Prize winner Adolfo Perez Esquivel. In spite of these controversies, its share price has been steadily growing since 2000, so it might not be a bad buy.
Berkshire Hathaway
This is Warren Buffett's investment company, and it usually outperforms the market at large. According to CBS Money Watch, a $1,000 share in Berkshire Hathaway in 1990 would have grown to $12,000 by 2010.
Berkshire primarily holds blue chip American stocks, companies with recognizable names across diverse sectors of the economy: Coca-Cola, Kraft, Wells Fargo, General Electric. It has ups and downs along with the rest of the market but emphasizes long-term gains over short-term profits.
So should you invest in Berkshire Hathaway? Yes, if you can afford it. At the time of writing, it was trading at a rather impressive $121,250.00 a share.
The search giant is currently trading at $631.75 a share. An interesting About.com article contrasts Google and Berkshire Hathaway, making the case that Berkshire, though astronomically more expensive, is actually a better buy. Since almost all of Google's profits come from online advertising, a major change in that relatively new industry could crush Google's market share and the hopes of its shareholders. Berkshire, on the other hand, has a diversified and time-tested corporate strategy.
These factors, and not just price, are what you should look at when deciding whether or not to invest in a company that already has a high market value.