The 52-week range gives investors a glimpse of where a stock is trading relative to its highest and lowest stock price during the past year. Below, three Motley Fool contributing analysts explain why Disney , Starbucks , and Procter & Gamble are worth buying today, despite the fact that they are trading near 52-week highs.
Tim Beyers (Disney): Although my strategy is more aggressive than most, I'm usually not inclined to buy near a 52-week high. So, why advise anyone to buy Disney stock near a record high?
Continue Reading Below
The time to invest isn't when a stock is trading for a historically low multiple to sales or earnings, but rather when a business is in the early stages of developing assets that will unleash enormous value in the years ahead. Why? Investors rarely account for in-process catalysts when valuing businesses, creating an opportunity for those with the courage to buy high and hold. Disney is that sort of stock right now, trading within 3% of its all-time peak -- $94.50, achieved on December 8.
That would be a warning sign if the stock weren't also trading for just 19.6 times the next year's average earnings target, according to data compiled by S&P Capital IQ. That's below similar estimates for both Twenty-First Century Fox and DreamWorks Animation , which trade for 20.8 and 31.5 times estimated profits, respectively. Yet neither of these studios possess the quality franchises that Disney does, two of which -- Pixar and Star Wars -- will introduce new treats for fans in 2015, including Inside Out in June and Star Wars: Episode VII -- The Force Awakens.
Regardless of how well these films do at the box office, they'll influence consumer licensing, theme parks, TV and movie development, and other areas of Disney's business. That's a profit-boosting formula and should help Disney stock set higher highs in the months and years ahead.
Joe Tenebruso (Starbucks): Many pronounced "value" investors enjoy shopping among the rubble that is the 52-week low list. However, within Tier 1, the real-money portfolio I manage for the Fool, I have a different approach. I believe that winners tend to keep on winning, and so I'd rather scour the 52-week highs list for companies that I think can continuously set new highs. One such company that I have my sights set on is Starbucks.
The coffee titan has been winning for a long time, and after its recent investor day presentation, I'm convinced that more good times lie ahead. CEO Howard Schultz and his team laid out a plan to nearly double revenue to $30 billion by 2019, as Starbucks expands its global cafe base to 30,000 from 21,000 at the end of fiscal 2014. Further fueling the growth of Starbucks will be its consumer packaged-goods business, where Starbucks plans to boost sales by 60% during the next five years.
New initiatives such as "Starbucks Evenings" -- during which wine and beer are offered at Starbucks cafes after 4 p.m. -- should also jolt sales. In fact, management pegs the evenings program alone as a $1 billion incremental sales opportunity.
Perhaps most exciting to caffeine-craving fans and shareholders alike is Starbucks' plan to introduce delivery in some areas in late 2015. By providing an additional layer of service and convenience to customers, this new delivery option could help stem the decline in traffic corresponding to the shift in consumer buying toward e-commerce and away from shopping malls. This was a key risk to my investment thesis for Starbucks; should investors' fears in this area be assuaged, we could begin to see P/E multiple expansion on top of an earnings stream that grows faster than many analysts are currently expecting. And that, my fellow Fools, is a recipe for outstanding share-price appreciation.
Tamara Walsh (Procter & Gamble): Shares of consumer-products maker Procter & Gamble are currently trading near their 52-week high of $91.28. However, the company's reliable dividend, coupled with recent cost-cutting efforts, make P&G worth owning here.
Procter & Gamble is in the process of selling between 80 and 100 of its underperforming brands. This strategy should pay off down the road for the conglomerate, as it will allow the company to focus more resources on its core brands, which currently account for about 90% of its revenue. In terms of future cash generation, P&G will keep the 23 brands it currently owns that each generate $1 billion to $10 billion in annual sales for the company. Some of those core brands include Gillette razors, Tide laundry detergent, and Crest toothpaste.
The company's rich history of shareholder returns is another reason to buy the stock, despite its recent high. Not only has Procter & Gamble been paying a dividend for an astounding 124 years without fail, but it has also increased that dividend for 58 consecutive years at a compounded rate of more than 9% a year.
The company's latest dividend hike was to the tune of 7%, bringing the stock's annual payout to $2.45 per share in fiscal 2014. Moreover, P&G returned $6.9 billion in dividend payments to shareholders during that time. I suspect that Procter & Gamble will continue rewarding shareholders for many years to come as it streamlines its global portfolio of brands and continues to focus on creating shareholder value. For that reason, investors shouldn't worry about buying the stock at these levels, especially if they plan to own it for the long haul.
The article 3 Stocks to Buy at 52-Week Highs originally appeared on Fool.com.
Joe Tenebruso has the following options: short January 2016 $100 puts on Walt Disney. Tamara Rutter owns shares of Starbucks and Walt Disney. Tim Beyers owns shares of Walt Disney. The Motley Fool recommends DreamWorks Animation, Procter & Gamble, Starbucks, and Walt Disney. The Motley Fool owns shares of Starbucks and Walt Disney. 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.
Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.