3 Stocks at 52-Week Highs Still Worth Buying

Markets Motley Fool

It might seem counterintuitive, but sometimes, the best stocks to buy are the ones that are trading near their 52-week highs. The reason is that winners tend to keep on winning, so jumping in after a company has made a bullish move can often lead to market-beating gains.

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Which recent winners do we think are worth paying up to own? We asked that question to a team of Motley Fool investors, and they picked Rio Tinto plc (NYSE: RIO)Take-Two Interactive (NASDAQ: TTWO), and Mazor Robotics (NASDAQ: MZOR)

Flying high, but still worth digging

Reuben Gregg Brewer (Rio Tinto plc): Rio Tinto's shares have been on a tear since commodity prices started to move higher in early 2016. If you step in here, you have to keep in mind that commodity prices will have a huge impact on Rio's stock. That's particularly true for iron ore, which made up around 62% of earnings before interest, taxes, depreciation, and amortization (EBITDA) and 80% of underlying earnings through the first half of 2017.

But here's the thing: Rio's business is really getting better. For example, it used the upturn in commodity prices to improve its balance sheet, reducing long-term debt by nearly 14% in the first six months of the year, or roughly $2.3 billion dollars. But go back to the start of 2016, right before the commodity upturn, and Rio has cut long-term debt by nearly 30%, or around $6 billion.

Long-term debt stands at a very reasonable 25% (or so) of the capital structure. Rio added debt to make it through the downturn, but is now prudently cutting debt as commodity markets recover.

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In addition, it's still expanding its business, even as it works to mend its balance sheet. It's got a few major projects in the works, with its Silvergrass iron-ore development expected to be fully commissioned later this year, the Amrun bauxite project set for 2019, and the Oyu Tolgoi copper mine on track for 2020. Like all miners, it cut back on capital spending during the downturn, but it clearly didn't stop spending on the projects it believed will position it best for the future. As those efforts bear fruit, the fundamentals of Rio's business will get stronger.

Commodity prices will always have a big impact on Rio's top and bottom lines. There's nothing it can do about that. But the improvement on the balance sheet and its strategic investments are things it can control -- and those efforts are paying off.

Yes, the stock is hitting highs, but the underlying improvement in the business is real. Rio has not only proven on a fundamental level that it's a survivor, but also that it's a miner with plans to keep getting better in good times and bad. That remains true no matter what the price is today.

There's still room for next-level growth

Keith Noonan (Take-Two Interactive): Most known for its hugely successful Grand Theft Auto video game series, Take-Two Interactive has been on a huge winning streak. Shares are up roughly 850% over the last five years and have nearly doubled year to date.

My thesis on whether Take-Two can continue to deliver stellar returns for shareholders can be simplified to three questions. Naturally, its performance will be affected by additional factors, but these are the drivers that best explain why I'm still bullish on the game publisher -- even at record prices.

First, is Grand Theft Auto (GTA) a property at the top of its popularity, or can it still expand its audience and sales? As the overall games industry has grown, GTA has grown with it, with each mainline installment selling more than its immediate predecessor.

GTA V has shipped more than 80 million copies -- an incredible feat. I think the next installment has the potential to match or exceed the most recent release's profits if Take-Two takes the smart, and somewhat obvious, route after GTA V's performance -- and focuses on the sequel's online mode. It would need to release the game at the tail end of the current console cycle to take advantage of user-base size, and then release an updated version for the next generation of video game hardware.

Next, does it look like the company's broader stable of properties is gaining strength? Again, the outlook is promising. With franchises like NBA 2KRed Dead Redemption, and Borderlands, a team of proven development studios, and the company's bigger push into mobile gaming, Take-Two has what it takes to benefit from industry momentum and capture the next level of growth with an expanding portfolio of franchises.

Finally, will the company continue to benefit from growth of high-margin digital sales? With video games transitioning to digital distribution, players showing increasing appetites for in-game purchases, and a strong group of franchises to work with, Take-Two is on track to deliver wins here, as well.

As the global games market continues to expand, Take-Two is positioned to be one of the biggest winners. I think long-term investors have the potential for substantial gains with the stock, even at today's record prices. 

I'm not the only bull

Brian Feroldi (Mazor Robotics): I've been an investor in the robotic surgery upstart Mazor Robotics for several years now. While I knew that the company was highly speculative when I first purchased shares, I was attracted to Mazor's razor-and-blade business model. My willingness to invest so early has allowed me to triple my money in less than three years. 

Despite the huge gains, I still think that it makes sense for interested investors to pick up a few shares today. My reasoning is that the company recently released some big news related to its strategic alliance with Medtronic (NYSE: MDT). For those who haven't been following this story closely, Medtronic signed a transformative deal with Mazor last year where it agreed to co-market Mazor Robotics' systems. The deal also called for Medtronic to become a major investor in Mazor, and also granted it the right to deepen its investment in the company if the first phase of the partnership went well.

Just a few days ago, we learned that Medtronic agreed to expand its relationship with Mazor earlier than expected. The new deal makes Medtronic into the exclusive provider of the Mazor X Surgical Assurance Platform and its accessories. In addition, Medtronic also agreed to invest another $40 million into Mazor and committed to annual minimums for Mazor X system purchases.

Medtronic agreed to this move because phase one of the partnership led to 59 Mazor X system sales in less than nine months' time. That represents a significant acceleration when compared to what Mazor was able to sell on its own.

When this news broke, Mazor's stock immediately jumped to a 52-week high, which makes sense because this deal promises to be a financial windfall for the company. With Mazor's growth trajectory now on firm footing, I'm much more confident that the company's future is looking bright. That's why I think it still makes sense to get in today, even though shares are trading quite close to their all time high.

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Brian Feroldi owns shares of Mazor Robotics. Keith Noonan owns shares of Take-Two Interactive Software. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Take-Two Interactive Software. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.