When the US markets moved from round lots to enabling odd lots to be easily purchased (especially online) the dynamics of the market changed. An investor could suddenly purchase 4 shares at $250 for a $1,000 investment rather than 100 shares at $250 for a $25,000 investment. Companies didn't pay as much attention to keeping their share price low. Even higher priced stocks such as Google were easily purchasable online in odd lots.
Even though round lots aren't required or preferred anymore there is a strange phenomenon that still exists at the fringe of the market. Companies with unusually high share prices. The flagship company for this behavior is Berkshire Hathaway with a single A share trading for $219,000. The cost of a nice house in most areas of the country!
Lower priced shares offer investors more flexibility with their holdings. Maybe an investor needs to sell half of their position to fund a new position, this isn't possible when a position consists of a single high priced share because while the market accepts odd lots, it doesn't accept fractional shares.
The lack of flexibility and optics of a high share price offer investors an opportunity. If most of the market disregards companies with high prices then it's likely that companies with high prices might be selling for less compared to a lower priced company. The price per share of an investment shouldn't matter, yet it does. I have seen over and over that companies with high prices sell at lower multiples compared to companies with lower share prices.
Some of the stigma is due to the media. In the Wall Street Journal, or other financial media a journalist will make special mention of a high share price as if it's something special and unobtainable for most investors.
I've never taken the time to look at every company trading above $1,000 per share, but for the few I've looked at I've come to the conclusion that if an investor were to limit their portfolio to only companies trading for more than $1,000, or even $500 a share they would crush the market.
Right now there are 83 (the number is potentially skewed high due to some dark names) companies trading for more than $1,000 per share. It appears the majority of these are dark companies where an investor needs to own a share before they can get an annual report. A number are banks, and some are even fully reporting companies such as Seaboard (SEB).
It probably won't be a surprise to many long time readers, but I'm familiar with about 40-50% of the names on the list. These are classic pink sheet names such as, Avoca, Queen City, CIBL, LICT, LAACO, Merchants National, Beaver Coal, Hershey Creamery, Tower Properties and on. The names I'm familiar with are indeed good values. There are compelling investment cases to be made for all of the companies I mentioned above.
The caveat to searching for stocks only trading above an arbitrary high price is that information might be unreliable, and it might be hard to obtain. I found a few companies on the screener list that have had their bid walked up significantly over the years, but it looks like shares haven't traded in eons.
This post might just be a very long way of saying that investors who look in corners of the market neglected by other investors will likely find an abundance of opportunities compared to the market at large. In terms of high priced stocks this is simply a behavioral phenomenon, there is nothing different between a company with 1,000,000 outstanding shares at $10, or one with 10,000 outstanding shares at $1,000. Yet investors treat the companies differently, and therein lies the opportunity.
For me, a high price stock indicate a company that isn't afraid to advertise its long-term track record. I wish more companies would refrain from splits.ReplyDelete
I own FMBL, QUCT, MNPP and and oversized position in LAACZ so I obviously agree with Nate here.ReplyDelete
I would love to have a look at CCVAJ's financials. If anybody out there is reading this and has the scoop, please hook a brother up!ReplyDelete
I've found the last 3 years, but they're useless without knowing how much of the company is public.Delete
Just incase anybody else falls down this rabbit hole. It's a 501c(7). Stock trades for no reason that I can ascertain. Definitely no dividend. Interesting financials, but don't bother..Delete
This is probably obvious to anybody who knows anything about country clubs, but I plead ignorance - being on the other side of the world.
An interesting idea, so I tried it out on stockcharts.com. Picking a couple of arbitrary past dates, I screened for stocks trading over $1000 at that time. Below is the example for Aug 30 2013. Of the dozen stocks meeting the criterion, five have lost nearly all their value by now, another lost at least 40%. The real result is possibly much worse, as Stockcharts omits historical data for stocks not currently trading. (prices are also adjusted for splits and dividends, so the real price in individual cases might have been less than $1000.) So my result proves nothing, but looking at some of the charts persuades me that probably high price is not a useful criterion for stock selection.ReplyDelete
stocks closing over $1000 on Aug 30 2013
symbol name 6/10/15 price
BRK/A Berkshire Hathaway, Inc. 209700
CNXS Conexus Cattle Corp. 0.001
ELRAD Elray Resources, Inc. 0.001
FMBL Farmers & Merchants Bank Long Beach 6050
HBANP Huntington Bancshares Inc. 1340
HIPH American Premium Water Corp. 0.6
MLCG ML Capital Group, Inc. 0.004
SEB Seaboard Corp. 3475
SIMH Sanomedics International Holdings, Inc. 0.004
SPGZ Spectrum Group Intl Inc. 600
SSNLF Samsung Electronics Co. Ltd. 1150
WFC/PL Wells Fargo & Co. 1185
source: Stockcharts.com, survivors only, split-adjusted
The problem with your approach is that you end up including stocks that never were above $1,000. Of the first two unknowns I looked at, CNXS and ELRAD for example, both may show as retroactively having a high share price but it is only due to reverse splits. They never were high priced stocks. I would bet it is true of HIP, MLCG and SIMH as well. I also would not include any preferred stocks which I think is the case with Wells Fargo.Delete