In my browsing online, I recently came across an article
discussing a list of supposedly attractive stocks with these
two characteristics: low prices and high dividend yields. Who
wouldn't like that?
Unfortunately, the list is problematic for two reasons:
First, in the world of stocks, a "low price" isn't what a
newcomer might think it is. Yes, a $5 stock has a lower price
than a $25 stock. But it's
notfive times more attractive. It might not be
attractive at all. What really matters is a stock's true,
intrinsic value -- and how its current price looks compared
to that. The $5 stock might really be worth $1.20 per share,
while the $25 stock might be worth $40,
making it a bargain. Remember that $50 stocks can -- and
often do -- become $100 stocks, while $5 stocks can -- and
often do -- fall to $0.50 or below.
Check out these stocks with seemingly high price -- each
is viewed very favorably by folks in our
Motley Fool CAPS community, earning
five of five stars:
Company
Recent Price
Rio Tinto (NYSE: RTP)
$222
Flowserve (NYSE: FLS)
$106
Markel (NYSE: MKL)
$327
3M (NYSE: MMM)
$79
Data: Motley Fool CAPS.
Meanwhile, here are some one-star companies (out of five
stars, remember), with prices that might look good to an
unsavvy beginning investor:
Company
Recent Price
Fannie Mae (NYSE: FNM)
$1.00
Ambac Financial (NYSE: ABK) Continued... |