3 Stocks That Could Hit $1,000

By Markets Fool.com

An unusual milestone for a stock is $1,000 -- one that most stocks will never achieve because companies will split their shares well before the price ever comes near that level. However, not all companies are committed to "ensuring adequate liquidity" through stock splits. In fact, there are some terrific businesses with stocks trading above $1,000. That's not entirely coincidental: The price is direct evidence the company has significantly compounded its per-share intrinsic value (companies go public at a price that is below $100.) In that context, which companies will be next to join the "$1,000 club"? Our Foolish analysts provide three candidates:

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: Shares of Google would need to roughly double to break $1,000 and while this won't happen overnight, I think the odds are good that they will do just that within the next five years (if it happens, it will likely be toward the end of that period, though.)

After all, assuming a constant price-to-earnings multiple, a doubling in the share price over a five-year period only requires earnings-per-share to double, which translates to an annualized growth rate of 14.9%. According to data from the Thomson Financial Network, analysts expect Google's earnings-per-share to grow at an annualized rate of 14.6% over the next five years. While I'm normally skeptical of forecasts that go out that far (a lot can change in five years!), given the observed (and expected) growth in the online advertising market and Google's dominant position in that market, that estimate looks very plausible indeed.

But what of the assumption that the current price-to-earnings multiple needs to hold? The C class shares (ticker: GOOG) are currently valued at 16.5 time forward earnings, according to research firm Morningstar. Though it's impossible to say where the multiple will be at any given time -- valuations are more volatile than trend earnings -- 16.5 is an ordinary market multiple (i.e. roughly fair value for the S&P 500). As such, it's not hard to imagine that Google's future prospects, five years from now, would continue to justify just such a multiple. After all, this is business with a wide economic moat in a "winner take all" industry.

: One stock that stands a good chance of hitting $1,000 before we get much older is Markel . Odds are, you haven't heard of it, but those familiar with the company tend to respect its management highly, likening the company to a mini Berkshire Hathaway . The company's president and chief investment officer is accomplished value investor Tom Gayner.

Like Berkshire Hathaway, Markel's stock has performed well over the long run, averaging annual gains of 15.5% over the past 25 years. (Berkshire Hathaway actually averaged a bit less, 14.9%.) Also, like Berkshire Hathaway, Markel's primary business is insurance -- and specialty insurance at that (think wedding, snowmobile, show horse, and motorcycle insurance, among other things), which can be more profitable due to less competition.

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The company's combined ratio has averaged 95% over the past decade, reflecting that Markel has been paying out only $0.95 in insurance losses and operating expenses for every dollar of premium it takes in. It's essentially investing the premium dollars it collects and holds until claims come in.

Meanwhile, Markel pays no dividend, but instead uses its cash to buy other companies (or big stakes in them), which deliver further cash flow. It recently bought Alterra Capital and has also bought makers of bakingequipment and automobile transport equipment.

In its fourth quarter, its net income grew by 15.8% year over year, while book value jumped 14%. With a market capitalization of about $10 billion, far less than many insurers, Markel has room to grow. Its recent P/E ratio near 33 and its price-to-book ratio of 1.4, above its five-year average of 1.2, suggest it's not a screaming bargain now, but it's not wildly overpriced, either. In the next few years, it may well surpass $1,000 per share.

Dan Caplinger: One surprising area that has been extremely lucrative for long-term investors is the auto-parts industry, and, among its major players, AutoZone has scored impressive returns over the past decade, seeing its stock price rise from less than $100 to almost $700 over that time span.

The secret to AutoZone's success has been tapping into the trend among vehicle owners to hang onto their cars and trucks for a longer period before replacing them. During the recession, millions of people couldn't afford to buy new vehicles as quickly as they had in the past, and increased quality from vehicle manufacturers, especially in the U.S., made continuing to operate those vehicles economically viable. With its extensive selection of aftermarket parts, AutoZone cashed in on increased demand for the parts that owners needed in order to keep their vehicles running longer, and it also worked closely with repair shops to cultivate professional relationships and capture that side of the business.

For investors, AutoZone's ongoing commitment to share buybacks makes it even more likely that the company could see its shares eclipse the $1,000 mark in the future. With just 40%-50% gains needed to break the four-digit mark, AutoZone could easily reach that milestone within a few years if it continues to enjoy the success it has seen in the past.

The article 3 Stocks That Could Hit $1,000 originally appeared on Fool.com.

Alex Dumortier, CFA has no position in any stocks mentioned. Dan Caplinger owns shares of Apple, Berkshire Hathaway, and Google (C shares). Selena Maranjian owns shares of Apple, Berkshire Hathaway, Google (C shares), and Markel. The Motley Fool recommends Apple, Berkshire Hathaway, Google (A shares), Google (C shares), and Markel. The Motley Fool owns shares of Apple, Berkshire Hathaway, Google (A shares), Google (C shares), and Markel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.