Should Investors Dump the Five Most Expensive Stocks? Maybe Not

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Investors have shaved $81 off Google’s share price in just two weeks. And at $345 a share, the stock may still have another 25% decline to go before bottoming out, according to Merrill Lynch analyst Henry Bloget. Still, the company is fetching a robust PE of 69. So, is Google still too expensive? Maybe. The research team from has taken a look at other pricey stocks to assess their prospects in the coming months.

So, is Google still too expensive? Maybe. Our research team from has taken a look at other pricey stocks to assess their prospects in the coming months.

Here are the five most expensive stocks in their respective categories. Do these prices mean that investors should steer clear? Not necessarily.

Let’s take a look…

  •     Infosys (Nasdaq: INFY) is an IT outsourcing genius, as witnessed in the stock’s 125% gain since the beginning of 2003. But at present, this stock is getting a little too top-heavy, trading at more than 20 times sales, and a massive 25 times book. While all signs point toward the stock moving higher in the near term, the risk to reward is most likely more than most prudent investors would want to take on.
  • (NYSE: CRM) is making Wall Street nervous with a P/E of 171. And, with a current ratio of a just 1.4, if the company falls on tough times it would only be able to pay its bills 1.4 times over.
  •     Moody’s (NYSE: MCO) is top dog in the corporate debt evaluation and ratings business. And for the time being, the Fed is expected to continue the upward trend of rate hikes, at least through spring. Rising rates would require corporations to refinance debt, thus giving Moody’s additional business – and on an upward trend – in the quarters to come.
  •     Nutrisystem (Nasdaq: NTRI) finished 2005 up a mind-bending 1,160%, but it may be getting a little bit fat with a P/E of 107, while trading 26 times book. Profits in 2006 are expected to climb 107%, though any guidance from the company alluding to slowing profits in the next year could quickly take a large bite out of the stock. With the stock having shot through the roof over the last year, risk-averse investors would be better off seeking safer stocks for their portfolios.
  •     Ultra Petroleum Corporation (Amex: UPL) may appear expensive, but you cannot rule out the company's enormous takeover appeal. With energy prices still on the rise, don't be surprised if the company fetches another 20% to 25% premium to current share price. After all, it does have an increasingly valuable asset base that includes more than 300 square miles of prime Wyoming gas fields, as well as offshore drilling sites in China.

When looking for value, it’s foolish to dismiss expensive stocks (on a price/book basis) out of hand. Expensive doesn’t always equate to over-priced.

Investment U, an educational investment e-letter, brings dynamic market information to more than 300,000 subscribers ( each day. For more information about our editors, or to set up an interview, please contact Juan Muñoz at 410.223.2693 or, or visit

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