9/27/2011 5:46 PM ET|
10 stocks you should know and love
In uncertain times, it can pay to stick close to home, investing in companies that make products you know and love. Consider Starbucks, Amazon, Estee Lauder and more.
If you want to know what stocks to buy in this uncertain market, here's a proven strategy.
Take a good look around at the products and services you use. Assess what's working, what's most important to you and what you refuse to give up even when times are tough.
Then consider that the companies whose products you know and love might also be stocks you'll love as an investor.
After all, from the time you sip your morning coffee to the moment you retire for the night on your memory-foam mattress, you're doing consumer research. That's especially true these days, when you're watching every dollar and talking with your friends about what products give you the most bang for the buck.
In short, don't ignore that experience. Use it to get a leg up on the professionals.
Sure, the folks on Wall Street have lightning-fast computers and armies of analysts. But they don't necessarily have a better read on consumers than you do. Because they don't make the same choices people on Main Street do.
Investing icon Peter Lynch -- who consistently beat the market while managing the Fidelity Magellan (FMAGX)fund -- famously made the case for "buying what you know" in his book "One Up on Wall Street," a must-read for investors. In the book, Lynch says he once netted a sixfold gain by purchasing shares of a company he checked out because his wife loved its pantyhose.
With that in mind, consider this list of companies that make products many of us use on an average day. Turns out some of the best-loved companies also have some of the best stocks in the market right now.
Starbucks for your morning joe
For an example of how investing in what you know works, consider Starbucks (SBUX, news). If you were paying attention as an investor a few years ago, you might have guessed the company had an overexpansion problem. The number of stores became a running gag long before the market caught on.
These days, when you stop for a morning jolt, you may notice that Starbucks shops are crowded once again. The coffee retailer has worked through its problems and is back on a steady growth path.
It's also telling that Starbucks' pricey coffee business is growing despite a slow economy. When the economy picks up, won't we all just go more often?
Of course, you may have made the switch to Keurig single-cup brewing machines; K-Cup coffee is hot. The company behind this coffee sensation, Green Mountain Coffee Roasters (GMCR, news), has seen revenue and profits jump recently.
But now's a good time to introduce you to the downside of the "buy what you know" approach to investing. Lynch himself cautions that loving a company's product is no reason to buy its stock. It is merely a clue; you still have to do your homework. And a check of Green Mountain Coffee Roasters raises several red flags. First, the company's stock has fallen sharply over the last few weeks. Next, since early May, insiders including the CEO, the board chair and the finance chief, have sold 1.8 million shares, or $172 million worth of stock, according to Thomson Reuters. I don't care how good their coffee is, that's a signal worth noticing.
Paying Exxon big at the pump
After coffee, it's time to fill up the car. Ouch.
Even though oil is down to aaround $85 a barrel, gasoline prices remain stubbornly high. In fact, gasoline still costs around $3.50 on average, nationwide, up from $2.70 a year ago, according to AAA. Bad news for your wallet, but here's the investing intelligence in all of this: If oil is down but gasoline is still high, oil companies must be raking it in. Indeed they are.
Of course, as a consumer you know Exxon Mobil, but you may not love it. You might if you were a shareholder, though. Exxon uses technology wisely to produce better returns on capital than its competitors do, and the company returns a lot of that money to shareholders. Over the past five years Exxon has returned more than $170 billion through dividends and share repurchases.
Healthy stop at McDonald's
If your lunch break occasionally takes you to McDonald's (MCD, news), you've no doubt noticed a change. Once trashed for ruining the nation's diet, the fast food giant has responded by rolling out an array of healthier options -- including wraps, salads, oatmeal and real fruit smoothies.
Consumers love 'em. McCafé beverage sales are rising, as are profits overall, at a time when many restaurants have languished. You might also have noticed upgrades to McDonald's restaurant décor and free Wi-Fi, which should also boost traffic.
In short, like Starbucks, McDonald's knows how to adjust to consumer demand. That makes it a company worth knowing and owning.
VIDEO ON MSN MONEY
I've got a great idea for all the protestors on Wall Street! Why don't you all start a commune where half of you can work and support the other half who don't.
Yes, it does take money to make money, but first, it takes hard work. This is often lost in politics. The curse of this nation is the people who feel they are entitled to a free ride. If you look at the government spending, most of it is "entitlement" money. I believe in a flat tax. Then, and only then will it be equal among all people - and eliminate the loop holes. Vote your heart - not your party. Dems and Repubs both have problems.
A Working Man said: "A wise man would be buying."
Archimedes was a very wise man too, until some Roman put a sword through him when he made the wrong decision... "Vo Victus."
History teaches these lessons over and over again but fools ignore them.
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