Buying stocks at new highs is always full of worry.
Instinctively, we don't want to pay top dollar for anything. Buying stocks at new lows can be scary, but I think more investors actually struggle with high prices. Are they buying too late and just making a market for sellers who want to offload their shares?
It's hard to tell how much more a stock could run up and it's not uncommon for even good stocks to drop after a high, only to resume their rise later.
So now that the two stocks below are back up to new highs, should we buy?
— Insurance Australia Group Ltd (ASX: IAG), the largest listed general insurer has kicked a couple of goals in the last year and the share price is back up around its $6.61 high. It bought the insurance underwriting business of Wesfarmers Ltd (ASX: WES), which bumped up its general insurance market share and eliminated a potential competitor as well.
Yet once that business revenue is "baked into" the stock, where are the growth prospects that will push earnings up further? Even at a 52-week high, it still yields a whopping 6.0% fully franked, so that will make it popular among dividend investors. It offers a good income, but the share price may become sluggish for a while. I would wait a while to see if you can get it after a pullback.
— Sirtex Medical Limited (ASX: SRX) is smoking hot because its main product, a specialised liver cancer treatment, has the chance of becoming a standard cancer fighting therapy in the US. If the findings of a current clinical trial suggest it should become a frontline therapy along with routine chemotherapy and radiation, product orders could skyrocket.
Many investors aren't waiting for the trial results expected to come out next year. They've piled in and driven the stock up to a nose-bleed high at 54x earnings. There is an old investing adage new investors should remember – "buy the rumour, sell the news". If the good news does actually come out, earlier investors could sell out for a quick profit, leaving later investors holding the bag. I would say watch this one closely, but let it pass for now.
