"Fashionable" may not be a word you associate with Warren Buffett, except possibly for his superhuman investment insight.
Nevertheless, hip technology types are now following a trend this frumpish protégé of value-investing pioneer Benjamin Graham started years ago.
Buffett’s trend is to avoid stock splits as long as possible. The result, for any company as successful as Buffett-led Berkshire Hathaway Inc. (BRK.A), is an eye-catching share price.
Berkshire Hathaway "A" shares now change hands at roughly $175,000 per share (give or take a few thousand).
Now other "cool" corporations emulating Buffett, letting investors push their price well into three- and four-figure ranges.
Google (GOOG) broke the four-figure-per-share threshold last week. Computerized travel site Priceline.com (PRLN) pushed past the $1,000-per-share barrier a few weeks earlier.
Following the High-Price Trend
As my Global Trend Trader subscribers can attest, I watch for all sorts of profitable trends. This new desire for companies to let their share prices climb to stratospheric levels without splits is major league curious, as far as trends are concerned.
Is a new trend in the works, one that’s leading more shares to follow Google and Priceline’s thousand-dollar lead?
The Race to $250 Oil
Oil stockpiles are on the rise here in the "shoulder" season between summer-cooling and winter-heating demands.
That means prices are dipping into the double-digits, and consumers are enjoying less pain at the gas pump.
This could all change soon, thanks to one controversial world leader conspiring with a global cartel to send oil soaring to $117 a barrel and beyond, in relatively short order. However. we’ve uncovered compelling evidence that he won’t stop till oil takes run to $250 a barrel from there!
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The table below lists the four stocks (of equities listed on major U.S. exchanges with both market capitalizations and annual revenues of at least $1 billion) whose share price is north of $1,000.
I also included are a dozen others that seem to be "split-resistant" and could cross the four-figure price threshold.
Current & Prospective
Share-split avoidance seems especially fashionable for tech-related firms. The candidates include Apple (AAPL), white-hot Netflix (NFLX) and Amazon.com (AMZN). The electronically guided surgical capabilities of Intuitive Surgical (ISRG) and data-processing power of MasterCard (MA) also qualify those firms as legitimately high-tech.
Chipotle Mexican Grill (CMG) may not be high-tech, but it is trendy and widely popular—and it sports a supersized stock price.
Diversified insurance firm Berkshire Hathaway’s six-figure stock price may have drawn other insurers like White Mountains Insurance Group (WTM), Markel Corp. (MKL) and Alleghany (Y) as possible converts to outsized stock prices.
What’s the Big Idea?
Why do companies do this? The motivation to let the share prices ascend so far above the norm isn’t the kind of thing managers explain in detail — but the growing number of firms adopting this policy leads me to call it a "trend."
Here are three possible explanations:
1. Management and boards regard the share price as a badge of achievement. Investors chose to bid the shares higher, so why not keep it there to mark your success?
2. Ignoring the share price lets management appear to be totally focused on business, unconcerned how the stock price compares with other companies.
3. The price gives the company a unique identity along with a certain mystique. Pundits call attention to them, constantly asking, "How high do you think the price can go before they split their stock?"
On the third point, attaining a high share price does get attention, as witnessed by the headlines when Google reached the $1,000 level. However, the search-engine pioneer and most of its companions on the accompanying table would be stocks worth watching at any price.
While I wouldn’t buy any stock merely because its price is above the norm, one stock on the nearby list is very deservedly — and profitably — in the Global Trend Trader model portfolio.
Most companies on the list have impressive performance numbers. All but two have rewarded shareholders with positive total returns for the year to date, with 13 of the 16 on the list ahead by double-digits. For Netflix, the 2013 percentage gain is in the triple-digits.
Even with relatively lofty stock prices, these companies still have room to grow. Of the 15 on the list with available mean estimates of five-year EPS growth forecasts, all show reasonably healthy annual gains. All but three expect double-digit growth rates.
If the recent ascent of Priceline.com and Google into the quadruple-digit club represents a trend, my Global Trend Trader mandate is to track it.
In fact, just yesterday I just gave my subscribers what looks like a fantastic alternative to Google … one that serves millions of eyeballs in the emerging markets … in one area where Google hasn’t yet figured out how to do a good job of customizing its users’ experience.
This trend may seem quirky — but a trend broad enough to include Warren Buffett’s super-successful Berkshire Hathaway and software dominator Google is worth careful scrutiny.
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