The Most Expensive Stocks In The Dow Jones Industrial Average & S&P 500

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October 13, 2015 12:18pm NYSE:DIA NYSE:SPY

wall-street-etfTara Clarke: Until July of this year, the most expensive stocks were among the priciest in history. That’s because U.S. stocks were the most expensive they’d been since World War II, as measured by their price/earnings (P/E) ratio.


How to Calculate the Most Expensive Stocks (or the Cheapest)

The price/earnings ratio – also known as a price multiple – is a handy gauge of whether a stock you are interested in is “expensive” or “cheap.”

It shows how much investors are willing to pay per dollar of earnings. In other words, a P/E ratio of 10 suggests investors are willing to pay $10 for every $1 of earnings the company generates.

A P/E ratio is derived by dividing a company’s share price by its earnings per share. However, most major stock tracking sites provide it for you offhand.

A company with a higher P/E than the market or industry average indicates accelerated growth. But it also means the company will eventually have to live up to its high rating by increasing earnings – or the stock price must drop.

But August came and went, and with it, “Black Monday” and the correction that ensued. Now, on average, stocks are 9% off from their mid-year highs. The market’s valuation has also dipped below average.

Still, there are high-flying stocks investors seem more than willing to snap up, despite marked up price tags…

Ten stocks on the S&P 500 right now command triple-digit valuations. They are among the most expensive stocks on the U.S. markets today. For instance, Netflix Inc.(Nasdaq: NFLX) is even more expensive now than it was a year ago. Shares in the video streaming service dipped 20% from their 52-week high in January.

But NFLX stock is up 121% year to date and still trades for 229 times its adjusted earnings over the past 12 months.

Valuation is up 61% compared to this time last year.

Remember that high P/E ratios aren’t categorically bad – there are other layers for investors to consider when looking at the most expensive stocks.

When gauging how expensive a stock is, it’s important to take the broader markets’ average P/E ratio into account, as well as the average P/E across the industry in question.

“Consider Altria Group Inc. (NYSE: MO),” Money Morning Chief Investment Strategist Keith Fitz-Gerald told readers on March 2. “In Altria’s case, I recommended it when it was trading at 12.56 times the prior four quarters’ worth of earnings. That might seem steep, especially considering the fact it was near its 52-week high, but to me it signified future upside. The reason? The 12.56 P/E ratio actually represented a 35% discount from the S&P 500’s average P/E at the time.”

And in fact, many expensive stocks (in terms of P/E ratio) have performed well this year. Here are a couple of examples:

  • The Dow’s third-highest P/E belongs to Nike Inc. (NYSE: NIKE) at 31.11. Shares are up 26.99% year to date.
  • The aforementioned NFLX stock has enjoyed a meteoric 121.52% rise this year. It’s got the third-highest P/E ratio on the S&P 500 at 246.20.
  • The S&P’s ninth- and tenth-highest P/E ratios, Under Armour Inc. (NYSE: UA) and Vulcan Materials Co. (NYSE: VMC), have both gotten share price bumps of roughly 45% in 2015.

Here are the top 10 stocks with the highest P/E ratios on the Dow Jones Industrial Average (INDEXDJX:.DJI) and S&P 500 (INDEXSP:.INX) right now…

10 Most Expensive Stocks on the Dow Jones (by P/E Ratio)

**Data from Oct. 7, 2015

Company Ticker Sector P/E Price
General Electric Co. GE Industrial Goods 73.76 $27.67
Microsoft Corp. MSFT Technology 32.02 $46.80
NIKE Inc. NKE Consumer Goods 31.11 $122.15
Visa Inc. V Financial 28.49 $73.11
Procter & Gamble Co. PG Consumer Goods 24.14 $73.62
The Coca-Cola Co. KO Consumer Goods 23.95 $41.49
McDonald’s Corp. MCD Services 23.64 $101.58
Pfizer Inc. PFE Healthcare 23.26 $33.26
Home Depot Inc. HD Services 23.09 $119.34
Walt Disney Co. DIS Services 21.53 $103.46

SEE THE NEXT PAGE FOR THE S&P 500

10 Most Expensive Stocks on the S&P 500 (by P/E Ratio)

**Data from Oct. 7, 2015

Company Ticker Sector P/E Price
Kraft Heinz Co. KHC Consumer Goods 483.13 $73.05
Computer Sciences Corp. CSC Technology 429.93 $63.62
Netflix Inc. NFLX Services 246.20 $108.09
Apartment Investment and Management Co. AIV Financial 211.56 $38.56
SL Green Realty Corp. SLG Financial 180.85 $113.63
Perrigo Company Plc. PRGO Healthcare 175.51 $156.24
Staples Inc. SPLS Consumer Goods 154.62 $12.63
Regeneron Pharmaceuticals Inc. REGN Healthcare 114.38 $484.38
Under Armour Inc. UA Consumer Goods 108.54 $98.86
Vulcan Materials Co. VMC Basic Materials 104.45 $94.12

Money MorningWritten By Tara Clarke From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet. And MoneyMorning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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