About a month ago, when Apple (AAPL) hit the $500 mark, I released an article, "5 Stocks: Who Wins the Race to $1,000?". In the article, I stated that Priceline (PCLN) was my pick to win the race. Also included were Google (GOOG), Intuitive Surgical (ISRG), and MasterCard (MA). I did not expect the race to heat up like it has over the past month. But since it has, it is time to update the race.
Apple: The point of my original article was to see if Apple could win the race to $1,000, or if there was a legitimate challenger. I expected Apple to do well going forward, but not this quickly! Let's look at a quote I made in the original article.
A dividend or buyback would propel this name even higher, with the dividend probably doing better if it were to attract a wide range of value investors. Apple's valuation on an earnings basis is also extremely attractive, so there is potential for multiple expansion, which would really send this name higher.
We've gotten all three. A dividend and buyback (which are not primary reasons to buy the stock), and multiple expansion. Since my original article, Apple has also launched the new iPad, which is an extremely hot product, literally. Apple's stock has risen another $100 since then, hitting a high near $610 Wednesday before falling back later in the day.
I said in my Apple article, linked above, that I expect a 14 multiple on Apple this year and 13.5 next year. Let's say I am conservative, and we'll give a 15 multiple on earnings. That means Apple needs earnings of $66.67 to reach $1,000. I don't see that in the next fiscal year (ending September 2013), but it may be possible in the one thereafter. Apple is up nearly 50% this year. I'm not sure anyone expected that this quickly. I certainly didn't.
Priceline: My pick to win the race is the current leader in the clubhouse. I'm not sure too many people have noticed, but Priceline has performed just as well as Apple this year. It is up more than 50% so far this year. Yes, Priceline is actually up more than Apple, year to date so far. The gap is close, but Priceline is ahead.
A great earnings report boosted this name over $600 to $630, and the rally has continued from there. Priceline crossed $700 on Wendesday for the first time. Current estimates call for 27% revenue growth this year and 20% next year. The company could easily do $40 in earnings in 2013, and if you assign a 25 multiple, that gives you $1,000. Given the name currently trades at a trailing multiple of 33, is that out of the question? I still think this name is the winner of the race, and if the company splits the stock this year, we probably get there sometime next year.
MasterCard: MasterCard is up more than 12% year to date, which normally you would think is good. Compared to the previous two names, it is a terrible laggard. MasterCard was the least likely to win the race in my opinion, but only because when I wrote the original article it was around $400, meaning it was the furthest away.
I still love this stock, and I think it goes to $500 this year. Revenues and earnings are growing at a double digit pace, and margins at credit card companies are very lofty. MasterCard's net profit margin in the past year was over 28%. This name will do well, and I expected it to put up a slightly better fight in this race. I did not see the huge rallies coming in Apple and Priceline, which seem to make MasterCard unlikely to hit $1,000 first. But you never know.
Google: Google is still ahead of Apple in the race, but Apple could pass it shortly. As my readers know, I keep warning about Google when it gets into the $620 to $650 range, as the stock has struggled mightily here in the past two years or so.
This next earnings report for Google may determine its place in this race. After a bad miss last quarter, Google needs to prove that was just a bad quarter. If it doesn't, this name could stay under $600 for a while. However, if Google can manage a decent quarter, this stock could easily get to $700 in the next month or two. Google has the second highest average price target of the five names in this list (only Priceline is greater), and also has the second highest "high target" from analyst (again behind Priceline). Google is currently in second in this race, but I think it might fall to third before long.
Intuitive Surgical: Intuitive is my dark horse in this race. At $533, the stock currently is fourth in the race, and is well behind. However, this stock has tremendous margins and is buying back stock. It's leading its industry with little competition, and I said this stock could hit $700 next year.
The one problem that Intuitive has is its lofty valuation, which many say is not justified. Yes, the name does trade at 43 times trailing twelve month earnings, but that's not unreasonable for this name. Over the past seven years or so, we've seen that multiple in a range of 20 to 70 or so. I don't think this name should have a 50 multiple, but 40 seems fair to me, considering its high margins and industry dominance. That means it would need $25 in earnings to break $1,000. I'm not quite sure that happens until 2014 or 2015. The only way this name makes a run in this race is if it is the first of these names to split its stock. A stock split should invite plenty of new investors to the name, and that could provide a nice boost to shares. However, that might not be enough to win this race.