Out of the 5 most expensive stocks in the S&P 500, one could be a buy

Expensive ... but attractive?

Investors shouldn't necessarily shy away from the highest-valuation stocks in the S&P 500, experts advise. In fact, one of the five stocks sporting the highest forward price-earnings ratios looks downright attractive, according to S&P Global portfolio manager Erin Gibbs.

Forward P/E
YTD % Price Change
Incyte 206 24
Amazon.com 205 31
UDR 138 9
SBA Communications 130 45
Netflix 110 47

"I like Amazon," she said Monday on CNBC's "Trading Nation." "Even though now it's 200 times [expected earnings over the next 12 months] instead of 140 times a couple months ago, we still like it."

Gibbs explained that the valuation has climbed markedly after Amazon's disappointing July earnings, which led analysts to slash their estimates for future profits; while the stock price has come off as well, the denominator in the P/E fell much more substantially than the numerator, shoving the valuation metric skyward.

Still, analysts expect the stock to see triple-digit earnings growth in 2018 and 2019, Gibbs pointed out.

Gibbs, who holds Amazon in one of her recommended portfolios, says the stock "could resume its uptrend ahead of the crucial holiday shopping season, especially considering the success of its annual Prime Day this year."

And the company's acquisitions, most notably of Whole Foods, should "help Amazon diversify its business and in the longer term allow Amazon to resume its impressive profit growth," she wrote to CNBC. "The downside is these acquisitions and new ventures have added to higher technology, content and marketing expenses, all impacting the bottom line."

This high degree of ambition is actually something that all five of the above stocks have in common, according to macro strategist Boris Schlossberg of BK Asset Management.

"Every one of these stories is basically trading on the idea of a world dominance script," Schlossberg said Friday on "Trading Nation." "And there is quite a strong possibility that one or two of these names can really achieve the world dominance the market is pricing into them."

While adding that he is "leery of the valuation numbers here, and I think ultimately they could disappoint going forward," Schlossberg said that given their incredible growth potential, "at the very minimum, I would not short any of these names."



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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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