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2 Growth-Stock Buys at 52-Week Highs

The 52-week high list is seen as a list of stocks to be avoided by the most value-conscious of investors. While names on a 52-week-high list may not be cheap based on historical average valuation multiples, it’s a mistake to rule them out as “overvalued” stocks that are overdue for a plunge.

Shunning stocks at 52-week highs is just as bad for stock pickers as ignoring the 52-week-low list. You see, all investing is value investing, as Warren Buffett put it in response to Berkshire Hathaway’s purchase of Amazon.com — a high-multiple stock that was deemed as an “out-of-character” purchase by many Buffett followers.

Based on traditional valuation metrics such as the price-to-earnings (P/E) multiple, it would have seemed that Berkshire had ditched its value-investing strategy and had embraced momentum stocks.

This simply isn’t the case, however, as one also has to consider the long-term growth potential and all other premium attributes (such as a wide moat) before getting a gauge of a stock’s intrinsic value. If a stock is unstoppable with the widest moat out there and a growth profile that’s unmatched, it’s more than “okay” to pay a higher P/E multiple, as long as you believe the stock is worth more than its current market value.

Here are two seemingly expensive stocks at 52-week highs that I think remain screaming bargains for investors with a time horizon of at least five years.

Restaurant Brands International

Restaurant Brands International (TSX:QSR)(NYSE:QSR) is quite possibly the Canadian company with the highest growth ceiling. The firm behind Tim Hortons, Burger King, and Popeyes can easily scoop up another fast-food brand and leverage the capabilities of management to expand to all parts of the globe that can offer an above-average ROE.

For now, three brands are more than enough. Tim Hortons and Popeyes have barely scratched the surface of their international growth potential, and as new partnerships are formed to get brands to enter new markets, Restaurant Brands can continue to grow free cash flows as few other firms can.

The “inferior” nature of fast food also means Restaurant Brands will be less affected by the state of the economy. Although Tim Hortons is readying for an aggressive move into the Chinese market, a predominantly tea-consuming nation that’s experiencing a coffee consumption boom, the U.S.-China trade/currency war has had a minimal impact to the stock, which recently posted robust quarterly comps across the board.

Restaurant Brands looks unstoppable at just over $100. Although the stock seems expensive at over 21 times forward earnings, given the tailwinds and premium traits, I think Restaurant Brands remains a bargain at all-time highs.

Boyd Group Income Fund

Boyd Group Income Fund (TSX:BYD.UN) is an auto repair chain that has a highly replicable, low-risk, growth-by-acquisition model within an incredibly fragmented industry. Like Restaurant Brands, Boyd has a remarkably high growth ceiling, and as long as vehicle accidents still happen, Boyd will continue to grow its earnings at a double-digit rate.

What makes Boyd such a growth darling is its management team, which is best in class at what it does. Auto repair shops can be a hit-or-miss business for many inexperienced mom-and-pop shops. But with Boyd, considerable synergies can be driven from each acquisition thanks to the firm’s abilities to optimize efficiencies in acquired firms that may not be living up to its full potential.

Yes, there is operational and integration risks, as there are with any firm that has the urge to merge, but given the “boring” low-tech nature of auto repair shops and the expertise of management, such risks are mitigated, and that’s a huge reason why Boyd has continuously posted significant gains with minimal volatility along the way.

Boyd is flirting with all-time highs, and, although expensive on the surface, it may actually be one of the biggest bargains for those who are willing to pay up for premium growth.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Joey Frenette owns shares of Berkshire Hathaway (B shares) and RESTAURANT BRANDS INTERNATIONAL INC. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon, Berkshire Hathaway (B shares), and RESTAURANT BRANDS INTERNATIONAL INC and has the following options: short October 2019 $82 calls on RESTAURANT BRANDS INTERNATIONAL INC, short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $200 calls on Berkshire Hathaway (B shares).

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