5 stocks scaling the heights
This post comes from The Motley Fool’s Rich Smith.
It’s every investor’s worst nightmare — buying a rocket stock just before it takes a nose dive.
MSN Money maintains a list of companies whose shares hit 52-week highs, and investors read this list and tremble — some with greed, others in terror. These and other stocks with momentum usually enjoy favorable ratings at our MSN CAPS investing community; everyone loves a winner.
Listed below are five of the companies hitting 52-week highs in the past week. Which among them does the CAPS community consider most likely to continue to outperform? If your guess is Google, which has been setting 2009 highs since reporting last week that third-quarter profit was the largest in the company’s 11-year history, well, thanks for playing along, but you’re wrong.
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Turns out, the 140,000-plus investors comprising CAPS are far less bullish on the glitzy Internet pacesetter than they are toward an operator in the more prosaic world of oil and natural gas refining, transportation and storage.
Here are our companies:
Enterprise Products Partners (EPD) is a midstream energy company providing services to producers and consumers of crude oil, natural gas and natural gas liquids. Shares of the Houston company hit a 52-week high of $30.10 in intraday trading today. The stock is up 44% so far this year, and trades at a forward price-to-earnings ratio of 15.9. At CAPS, the company has a five-star rating.
Walt Disney (DIS) is one of the nation’s biggest entertainment and media conglomerates. Shares of the Burbank, Calif., company hit a 52-week high of $29.98 on Oct. 19 and are up 31% in 2009. The stock trades at a forward price-to-earnings ratio of 15.7 and has a four-star rating at CAPS.
Halliburton (HAL) is one of the world’s largest providers of oil-field services. Shares in the Houston company hit a 52-week high $31.95 in intraday trading today. The stock is up 75% this year and trades at a forward price-to-earnings ratio of 22.2. At CAPS, Halliburton has a four-star rating.
Google (GOOG) operates the Internet’s most popular search engine, offering targeted search results from billions of Web pages. Shares in the Mountain View, Calif., company hit a 52-week high of $559.35 today in intraday trading. The stock is up 81% so far this year and trades at a forward price-to-earnings ratio of 23.9. Google has a three-star rating at CAPS.
Whole Foods Market (WFMI) operates the nation’s biggest chain of natural-foods stores. Shares of the Austin, Texas, company hit a 52-week high of $34.40 in intraday trading today. The stock is up 258% so far this year and trades at a forward price-to-earnings ratio of 29.9. At CAPS, Whole Foods has a two-star rating.
What the bulls say about Enterprise Products
CAPS participant “KyrieLoon” succinctly laid out Enterprise’s strengths. The company is “up to its elbows in natural gas, and offers a range of processing, transportation and storage services,” KyrieLoon wrote in June. “It has an interest in over 30,000 miles of pipelines, a long history of profitability (and) has paid a consistently increasing dividend since 2005.”
Bulls are undaunted by a grim outlook for natural gas prices, which recently fell to around $5 per million British thermal units from more than $13 per million BTU in July of last year. The recession has curbed demand, but gas prices have also been hobbled by a supply glut — a result of advances in drilling technology that permit North American producers to tap gas locked in shale.
CAPS member “Tomdunno” explains why low gas prices may not be a big deal to a pipeline operator like Enterprise Products. “Nat gas will become a fuel source for autos and trucks in the future,” Tomdunno wrote. “This will force distribution to increase even if the price stays lower. . . . Companies involved in distribution now will barely be able to handle the flow.”
OK. But if this is a long-term trend we’re talking about, why buy now? What’s the rush? CAPS All-Star “Roto1177” sums up the urgency in three words: “Huge insider buying.”
What got Roto1177 rooting for Enterprise Products is a massive splurge by Chairman Dan Duncan, who earlier this year paid about $150 million for nearly 6 million shares of company stock.
Now I’ll grant you that we’ve seen corporate bosses bet big — and bet wrong — on their companies. Earlier this year, Goldman Sachs (GS) was in the awkward position of having to make margin calls on its own partners, who had bought too much stock on margin just before the crash — too much Goldman stock!
And closer to Enterprise’s turf, Chesapeake Energy (CHK) CEO Aubrey McClendon got caught flat-footed in a similar margin misstep last year and was forced to dump a 5% stake in the company at a loss.
What’s to prevent Duncan from sharing a similar fate? What’s to encourage you to share the risk with him?
First and foremost, we love it when management has “skin in the game” and shares the risk alongside us mere mortals. Duncan’s doing that, and we applaud him for it.
Second, have you seen the size of Enterprise’s dividend? This company’s paying out 7.4% every year — and that’s in addition to any appreciation you get when the stock price goes up.
Now mind you, with a P/E of more than 19, I’m not entirely certain we’ll see Enterprise Products’ stock go up much more — it’s already pretty richly priced. But judging from his actions, the chairman doesn’t expect to see it fall. Neither do I.
But hey, feel free to disagree. If you’ve got a criticism to level against Enterprise Products, we’ve got a place for you to state your case. Click on over to CAPS and sound off.
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