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3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

GuruFocus.com
·4 min read

- By Margaret Moran

The most basic principle of stock market investing is buying a security at a lower cost than the price at which you expect to be able to sell it for in the future.

In value investing, we typically like to opt for a margin of safety rather than investing in companies with sky-high valuations. It is impossible to predict the future, so, in general, it is better to avoid investing in dramatically overvalued stocks, especially if they fall outside of your circle of competence.


However, while many overvalued stocks later see a complete collapse in their valuations as their outlook and popularity wanes, some have eventually grown into their valuations (though we must be careful of survivorship bias when looking at these companies from a historical perspective).

With this in mind, I used the GuruFocus All-in-One Screener to search for the most popular guru-owned stocks that are trading with a trailing 12-month price-earnings ratio of at least 30 and a price-to-GF Value ratio of at least 1.4. The price-to-GF Value ratio compares the stock's price to its GuruFocus Value, which is an intrinsic value calculation unique to GuruFocus that considers a company's historical valuation metrics, past growth and expected future returns.

Below are the three top results of the search; even though they are overvalued, many gurus seem to have confidence that they can grow into their valuations.

Apple

Apple Inc. (NASDAQ:AAPL) is an iconic American consumer electronics company based in Cupertino, California. Its most iconic products are the iPhone and its computers, though the company also designs, manufactures and sells a wide range of other consumer electronics and software-as-a-service products.

Apple has a price-earnings ratio of 33.94 and a price-to-GF Value ratio of 1.73. The price-earnings ratio is higher than 64% of competitors as well as its own 10-year historical median of 15.6. The GuruFocus value chart rates the stock as significantly overvalued.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Of the gurus followed by GuruFocus, 32 hold common stock positions in the company as of the most recent quarter. Warren Buffett (Trades, Portfolio) is the most notable guru shareholder with 5.73% of shares outstanding, followed by Ken Fisher (Trades, Portfolio) with 0.33% and Pioneer Investments (Trades, Portfolio) with 0.21%.

In recent quarters, gurus have bought and sold the stock in approximately equal measure, with most of the buying concentrated around the fourth quarter of 2019 and the second quarter of 2020.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Thermo Fisher Scientific

Based in Waltham, Massachusetts, Thermo Fisher Scientific Inc. (NYSE:TMO) produces scientific instrumentation, reagents and consumables, as well as related software and services, to health care, life sciences, academia, government and industry customers who are conducting health research.

Thermo Fisher Scientific has a price-earnings ratio of 40.39 and a price-to-GF Value ratio of 1.50. The price-earnings ratio is higher than 50% of competitors as well as its own 10-year historical median of 28.78. The GuruFocus value chart rates the stock as significantly overvalued.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Of the gurus followed by GuruFocus, 22 hold common stock positions in the company as of the most recent quarter. Primecap Management is the most notable guru shareholder with 1.20% of shares outstanding, followed by the Vanguard Health Care Fund (Trades, Portfolio) with 0.85% and Andreas Halvorsen (Trades, Portfolio) with 0.44%.

In recent quarters, gurus have mostly been buying the stock, with a particularly strong spike in the second quarter of 2020.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Nike

One of the most famous athletic footwear and apparel companies in the world, Nike Inc. (NYSE:NKE) is headquartered in Beaverton, Oregon. The company got its start in the U.S. but has since expanded to a truly multinational company, with approximately 60% of revenue coming from outside its home turf.

Nike has a price-earnings ratio of 74.19 and a price-to-GF Value ratio of 1.44. The price-earnings ratio is higher than 87% of competitors as well as its own 10-year historical median of 24.91. The GuruFocus value chart rates the stock as significantly overvalued.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Of the gurus followed by GuruFocus, 20 hold common stock positions in the company as of the most recent quarter. Frank Sands (Trades, Portfolio) is the most notable guru shareholder with 0.43% of shares outstanding, followed by Ken Fisher (Trades, Portfolio) with 0.41% and Spiros Segalas (Trades, Portfolio) with 0.27%.

In recent quarters, gurus have bought the stock more than they have sold it, with the biggest spike during the first quarter of 2020.

3 Stocks That Gurus Agree Deserve Their Sky-High Valuations
3 Stocks That Gurus Agree Deserve Their Sky-High Valuations

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

Read more here:

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  • Colgate-Palmolive: 3rd-Quarter Win Reflects Strength of Growth Strategy

  • Amazon Blows Away 3rd-Quarter Estimates



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This article first appeared on GuruFocus.