Stocks with Both Growth and Value Credentials
Growth/Value Stock #2: Priceline (PCLN)
October in the Witch City
Today I’m featuring the second in my series of stocks that have both growth and value credentials.
Most of you seemed to like the first one (Boeing BA), but a few misperceptions have become apparent.
First, the stocks in this series are not necessarily value stocks any longer. Value stocks are, simply put, stocks that are both cheap and have solid fundamentals. Roy Ward, the Benjamin Graham/Warren Buffett acolyte who ferrets out the value stocks that go into the Cabot Benjamin Graham Value Investor, looks for companies that have excellent earnings prospects, but whose stocks are trading at bargain prices. Roy determines a maximum buy price (below which it’s a bargain) and a minimum sell price (above which it’s fully valued and thus no longer a “good value.”) That’s how value investing works.
My 10 Growth/Value stocks are stocks that showed up on Roy’s list of the “Top 275 Value Stocks” from the Benjamin Graham database in the September 2013 issue. These 10 stocks also showed up on page 12 of the Cabot Top Ten Trader, Cabot’s weekly report on the 10 strongest stocks of the previous week. Each stock written about in Top Ten is given a buy range, and if the stock trades within that range during the following two weeks, it is placed on the hold list on page 12, indicating that it has positive momentum as a growth stock. So, to clarify, what struck me was that these stocks were considered attractive in growth terms but also have characteristics that make them interesting in the value category.
Many, if not most, of these stocks will have outrun the price range that made them attractive to value investors … at least for now!
However, it’s my contention that a stock that qualifies fundamentally as a value stock but has accelerated its price appreciation like a growth stock is a worthy candidate for any stock investors’ attention. It shows that, fundamentally, there is a very sound foundation to those companies, which, combined with the strong price appreciation, can point to great opportunities.
Today’s stock is Priceline.com (PCLN), the travel and lodging discounter whose message has been drilled into our heads for years via its celebrity spokesman William Shatner and his TV ads. (If you missed my first growth/value discussion, you can view it here.)
Here’s what Cabot Top Ten Trader had to say about Priceline.com in its latest appearance on July 1, 2013.
“Priceline.com (PCLN 841)—With the July 4th holiday just around the corner, summer travel is in full swing. What’s more, the current economic environment heavily favors discount travel booking firms like Priceline. In addition to the company’s improved outlook for summer travel, Priceline has been front and center for investors after acquiring red-hot competitor Kayak Software—an online booking firm that aggregates deals from other online travel websites into one set of search results. Priceline expects to create synergies with Kayak that will grow its international presence, while helping Kayak expand its reach in the U.S. Despite global economic pressures, Priceline’s bottom line has held firm. In fact, the company has increased its revenue and profit margin year-over-year since 2009. Priceline has also put up impressive numbers during the past year, with revenue growth averaging 21% on a year-over-year basis, while earnings have risen by an average of 32% on the same basis. Lastly, despite the stock’s lofty heights, Priceline is still relatively undervalued when compared to its peers. Priceline sports a P/E ratio of 28.93, roughly 20 points lower than its leading competitor Expedia. With wanderlust affecting quite a few travelers this summer, we believe Priceline is well positioned to lead investors higher.
“While other stocks were sinking, PCLN held its ground in 2011, with shares finding firm support near 450 despite turmoil on Wall Street. In 2012, PCLN rallied sharply higher, topping out just shy of 800 by late April. But the stock was unable to hold its lofty perch, ultimately pulling back for a retest of support near 550 by mid-year. Undaunted, PCLN resumed its trek higher, gaining strength in early 2013 as the Kayak acquisition was approved. Now PCLN sits perched in all-time high territory around 840. You can nibble here, or take larger bites on pullbacks toward 800. A stop at the stock’s 50-day moving average near 779 makes sense.”
It’s worth noting that Priceline.com, which was trading at 841 when this issue of Cabot Top Ten Trader came out, has now edged above 1,000. This move has pushed PCLN well above the 810–840 buy range Cabot Top Ten Trader recommended for buying the stock.
Priceline is still on page 12 of Cabot Top Ten Trader because it has kept its momentum, which is what great growth stocks do.
So should you buy PCLN here? Well, I’m a growth guy, so I’d probably say yes to buying a little. The stock has outrun the maximum buy price set by Roy Ward in Cabot Benjamin Graham Value Investor (714.48), but hasn’t yet reached the minimum sell price (1097.81). So it should have farther to run. And since the stock is still on page 12 of Cabot Top Ten Trader, it still has some price appreciation.
To my mind, PCLN is a low-risk proposition. If you’re looking for a screaming growth stock, it’s probably a better idea to get fresher names, which means growth stocks earlier in their rallies. And value investors should look for stocks that represent better bargains.
Still, when a company like Priceline.com makes 23 appearances in Cabot Top Ten Trader since its debut in October 2006, (when it was trading at 41), that’s an indication of long-term strength that’s hard to match.
Ultimately, what’s to be learned from this list of stocks that share growth and value characteristics is that the most important decision you can make as an investor in individual stocks is about yourself: Are you a growth investor or a value investor?
If you are interested in value stocks, than Cabot Benjamin Graham Value Investor is the publication for you.
If you are a growth stocks investor, than Cabot Top Ten Trader can give you many momentum stock ideas delivered to your inbox each week.
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Today is the first day of October, which may mean something a little different to those of us who work in Witch City.
Yes, your local supermarket may have an aisle crammed with bags of empty (delicious) calories and a wide selection of costumes and accessories. And your street may have a few people who have already strung up the polyester spider webs and orange lights and plugged in the inflatable ghosts, ghouls and goblins.
And yes, there may be pumpkin coffee, pumpkin muffins and pumpkin everything else popping up everywhere.
But Salem, Massachusetts, in October is really something to see. As the month wears on and the buses full of leaf peepers detour into the heart of this small New England city, things do get crowded … and weird.
There will always be the Colonial houses, fascinating waterfront and absorbing history of Salem to fascinate visitors. The Peabody Essex Museum is worth the trip all by itself. And the town’s Witch Trials heritage is both a gripping story and a great civics lesson.
A trip to Salem during the next few weeks can be entertaining. But I don’t recommend visiting Salem on Halloween itself. The police keep a very tight lid on things, but it’s still a mob scene, with the fireworks provided mostly by idiots full of pumpkin-flavored beer.
If you’re like me, you’ll prefer staying home, maybe re-watching Tim Burton’s Nightmare Before Christmas or Beetlejuice or the horror movie of your choice.
For me, I get plenty of horror just reading the news feeds every day. All it takes to creep me out these days is for someone to sneak up behind me and whisper “Congresssssssss.”
Now that’s scary!
Btw, I’m off to Vermont tomorrow to attend the 51st annual Contrary Opinion Forum in Vergennes, Vermont. It’s always relaxing to take a drive across New Hampshire and Vermont, even if peak foliage is probably a week or two away.
But the Contrary Opinion Forum is a serious business, with many presentations by high-powered economists, investment strategists and market analysts. I always come back with some great ideas (and a few good jokes) that help to shape my thinking for the next six months or so.
I’ll be writing about what I hear and see in upcoming Cabot Wealth Advisories. It’s good to hang out with the contrary; it clarifies the mind.
Wishing you success in your investing and beyond,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory
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