The $1,000 Club

In Kiplinger's Personal Finance Magazine, David Milstead looks at four stocks that have made it above the $1,000 per share mark.

Steve Halpern: Joining us today is David Milstead of Kiplinger's Personal Finance Magazine. How are you doing today, David?

David Milstead: I'm good, how are you?

Steve Halpern: Very good, thanks for joining us. In the new issue of Kiplinger's that just hit the newsstands, you wrote an article called The Four Figure Club, meaning stocks that reached the $1,000 per share level. While such a high price might scare some investors away, you note that this high price tag doesn't necessarily make these stocks expensive. Could you explain?

David Milstead: Sure, it's not the share price that actually makes a stock expensive, even though these are at least $1000 apiece. It's actually how much a stock costs in comparison to the earnings that a company produces, expressed on a per share basis.

In the case of both, Google (GOOG) and Priceline (PCLN), which are featured in this story, the market expects each of these companies to produce about $50 in earnings for each share of stock that's on the market.

And, so, when you have their share price over $1000, it's really only 20 times those earnings, a price to earnings ratio of about 20, and there are plenty of stocks on the market that trade for $10, or $5, or $20 that have price to earnings ratios that are much higher than that.

So, really, it's not the fact that these stocks are $1000 apiece; it's what they cost, in terms of how much earnings power you're actually buying, and, in the case of many of these stocks, the price to earnings ratio isn't really that high at all.

Steve Halpern: Now you note in the article that the $1,000 Club is still very exclusive. In fact, there were only four stocks that made the list and two of them, Berkshire Hathaway (BRK-A) and Seaboard (SEB) have been above this level for some time. Can you tell us a little about those companies?

David Milstead: Sure. Well, many investors know Berkshire Hathaway. It's the investment vehicle for Warren Buffett, the famed investor. He has never split the primary shares of his company and so they've traded it for tens of thousands of dollars apiece for quite some time.

He did, however, create another class of shares several years ago and after he bought the Burlington Northern, or Berkshire Hathaway, he bought the Burlington Northern Railroad a few years ago in 2009, I believe it was, he actually had to split those shares down to a level in the $65 range at the time.

And so they became much more accessible price, these class E shares of Berkshire Hathaway, but the class A shares, the shares that have been in existence since Berkshire Hathaway became a public company, those are the most expensive on the market.

Seaboard is really, actually, relatively unknown. It's an odd company that has a lot of agriculture and, per the name Seaboard, it engages in shipping.

They do commodity trading, they own a sugar plant in the Dominican Republic; it's really an interesting collection of businesses, and again, not very well known, and it's another company that is controlled by a family and they have never have split the shares.

Splitting the shares is a practice in which you get, for example, twice as many shares as you did before, but you're entitled to, you know, half as much of the earnings as before, and so, share splits cut the price of a stock, but preserve your economic interests.

And for whatever reason, Warren Buffett and the managers of Seaboard have not been willing to split the shares, and that's what's made their price so high.

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