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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.
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.