Most of us will hesitate to buy a stock that’s hitting a new all-time high.
It’s a natural reaction as there is a belief that such an achievement implies that the stock must be getting expensive.
With the economic recovery in full swing around the world, a greater number of stocks are attaining new highs for their share prices.
However, this doesn’t mean that you should exclude them from your consideration.
Let’s use an example to illustrate this.
Many investors search the bargain bin for stocks that are either hitting 52-week lows or new all-time lows.
Because these stocks are falling in price, they must be even more worth buying.
What you may not realise is that these companies’ business models may be broken, or they could be losing their long-term competitive edge.
Cheap, therefore, does not always equate with quality.
Conversely, a stock hitting a new high may imply that the business is doing something right that justifies a higher valuation.
It could be due to their dominance in the industry they are in or the simple fact that they can continue to grow despite the crisis.
Here are three US stocks that have been hitting new highs but which I believe still have strong prospects.
Alphabet (NASDAQ: GOOGL)
If you’ve ever conducted an online search, chances are you’ve used Google as your default search engine.
Google is the core business of Alphabet, a technology company that owns a multitude of businesses.
The search engine has been the dominant one used for most browsers and earns its revenue through advertisements.
As more people stayed home during the pandemic, Alphabet has benefitted from increased usage of search engines.
The company’s share price recently hit an all-time high of US$2,270 before dipping slightly to the current US$2,242.
The company has reported strong full-year 2020 results, with both Google Services and Google Cloud seeing increased revenues.
Revenue for the core Google business rose 11.1% year on year to US$168.6 billion while its cloud division saw revenue surging 46.4% year on year to US$13.1 billion.
Operating income for Google Services rose 11.4% year on year to US$54.6 billion, but Google Cloud incurred an operating loss of US$5.6 billion.
Net profit after tax for Alphabet jumped 17.3% year on year to US$40.3 billion.
The search giant also generated a healthy free cash flow of US$42.8 billion, while its balance sheet had close to US$136.7 billion worth of cash and investments with minimal debt.
Looking ahead, as more people go online and continue browsing the internet, Google should see its advertising revenues continue to grow.
Facebook (NASDAQ: FB)
Facebook is the de facto social media platform where users log in to update their status, “meet” up with friends and share posts on news articles.
The pandemic has heightened the need for social interactions and pushed more people onto the social media giant’s platform.
Facebook also owns the photo and video-sharing software Instagram and chat app WhatsApp.
The company’s share price recently hit an all-time high of US$313 but has since declined to around US$303.
Advertising revenue jumped 21% year on year in 2020 to US$84.2 billion, while operating profit rose by 36% year on year to US$32.7 billion.
Net profit soared 58% year on year to US$29.1 billion as expenses rose less than revenue and operating profit.
The company has a clean balance sheet with around US$62 billion in cash and investments with zero debt.
Daily average users (DAU) and monthly average users (MAU) have also been steadily rising.
For its 2020 fourth quarter, DAU rose 11.3% year on year to 1.8 billion while MAU increased by 12% year on year to 2.8 billion.
Starbucks (NASDAQ: SBUX)
When you want to chill out from work and have a hot cup of latte, Starbucks is probably just around the corner.
The coffee giant has grown and expanded its chain of outlets over the years and as of January 2021, has nearly 33,000 stores worldwide.
Starbucks serves up a mix of hot and cold beverages as well as food items such as quiches, sandwiches and cakes and offers a warm, comfortable atmosphere to enjoy your food and drink.
Its share price has also served up strong returns over the past year, rising nearly 59% from US$72.55 to close at an all-time high of US$115.16.
Its fiscal 2021 first quarter ended 31 December 2020 shows mixed results but demonstrated steady recovery from the pandemic when it had to temporarily shutter the vast majority of its stores around the world.
Comparable store sales were -5% in the US but registered growth of 5% in China, its second-largest market.
The good news is that active Starbucks members increased by 15% year on year to hit 21.8 million.
Total revenue for the quarter dipped 4.9% year on year to US$6.7 billion but net earnings fell by almost 30% year on year to US$622.2 million as the company booked US$72.2 million of restructuring and impairment costs.
The company isn’t slowing down, though.
During its biennial Investor Day, Starbucks has committed to opening 600 new stores in China this fiscal year.
The goal is for the company to reach around 55,000 stores across 100 markets by the year 2030, which will make Starbucks the food and beverage chain with the widest global reach.
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Disclaimer: Royston Yang owns shares of Alphabet, Starbucks and Facebook.