2020 has been a tough year for UK stocks. Some have tanked, while others have soared, and for many the outlook is blurry. Until the coronavirus pandemic is under control, stock markets are likely to remain on this volatile path. There are now several shares trading at astronomical price points. Are they worth it?
Wargame wonder
First up, FTSE 250 stock Games Workshop (LSE:GAW) is trading at around £92 a share. It has a P/E ratio of 42, earnings per share are £2.18 and continues to pay a dividend. With its share price rocketing 52% year-to-date, the dividend yield has fallen and is now around 0.33%.
Games Workshop can largely put its success down to the popularity of its tabletop miniature wargame Warhammer. The company has gone all out, boosting its reach and embracing demand for the game by partnering with organisations such as the Scouts and Duke of Edinburgh’s Award. The game is one that parents can enjoy with their children, which has further enhanced its staying power.
Lockdown caused all Games Workshop stores and clubs to close, but the love of the game has not abated, and online sales have increased.
The company has significant operational gearing, through the rent of premises, software, production and more. This means if sales continue to rise, it could be a great investment. But obviously, if sales decline, then it could have problems.
Yet City analysts remain bullish on the GAW share price, forecasting a target of £89-£120 for the year ahead. I think it is expensive, but the tabletop gaming niche is a popular one.
Money in UK stocks
Next up is the London Stock Exchange (LSE:LSE), which has enjoyed a share price rise of 14% year-to-date. The LSE share price is now around £88 and its P/E is 74, which also makes it an expensive UK stock to buy. It posted positive interim results to the end of June and increased its dividend to 23.3p, giving a yield of 0.26% and earnings per share are £1.19. It is attempting to take over financial data analytics firm Refinitiv, but is up against an in-depth anti-trust investigation by the European commission. I think the positive sentiment originally surrounding this deal, along with economic uncertainty, pushed investors to see the London Stock Exchange as a safe haven. Unfortunately, the Refinitiv deal is under a cloud and to get approval may require selling assets, reducing the value of the company. This puts its share price at risk of a sharp decline.
Shares in AstraZeneca are trading around £83, up 8% year-to-date. This pharma giant has one of the highest P/Es around at 94. It is developing a Covid-19 vaccine with Oxford University, which you would think might boost its share price. However, it is unlikely to profit much from this deal as those developing vaccines have promised to keep prices low. Yet AstraZeneca also makes a wide range of reputable medicines, including cancer treatments, which I think will stand it in good stead going forward. Earnings per share are 78p and its dividend yield is 0.82%.
These are very expensive UK stocks, so would I buy any of them this month? Well, I would consider all of them in a dip. But to invest money to get good returns, I would follow a value investing strategy, which just is not possible with such high-priced stocks.
