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Use this Simple Secret to Find the Best StocksBy
Thursday, September 16, 2010
One of the secrets to finding the very best investments is so simple and so obvious, most people don't pay attention to it...
If you'd known about this secret back in 1994, you could have bought Colgate-Palmolive for less than $10 a share and made more than seven times your money.
If you'd known about this secret back in early 1995, you could have bought Microsoft for $4 and made more than six times your money.
If you'd known about this secret back in 2003, just seven years ago, you could have bought McDonald's for $13 a share – and made more than six times your money, including a growing stream of dividends.
When you take into account the crashes of 2000-2002 and 2008-2009, it's especially amazing investors are up this much. What's their secret?
They look for companies with the highest sales in their industry.
I realize this sounds so obvious it's almost laughable. That's just because the real secrets to successful investing aren't complex, like they are in science. They're so simple, anyone can understand them. For example, "Buy low, sell high" is laughably obvious. It's just that almost nobody has the discipline to actually do it.
Selling the most is the definition of success in business. Microsoft Windows runs about 90% of the world's personal computers. Intel sells about 80% of the world's microprocessors. Campbell's sells more than 70% of the world's packaged soup. More than 60% of the world's credit and debit cards say "Visa" on them. Colgate-Palmolive sells more than 40% of the world's toothpaste. These are all excellent businesses with huge, consistent profits.
Once a business sells more than any other company in its industry, it becomes incredibly difficult to compete with. Imagine trying to build a home-improvement business today. You'd have to compete with Home Depot and Lowe's. Imagine trying to build the world's most popular retailer. You'd have to try to compete with Wal-Mart. Wal-Mart has put dozens of grocery chains and mom-and-pop shops out of business. Imagine trying to make better french fries and sell more of them than McDonald's. Never gonna happen. There's no substitute for being No. 1.
Think about Amazon. It used the Internet to sell more books to more customers than any bricks-and-mortar bookstore chain ever could. Borders and Barnes & Noble are in terrible shape today because they failed to do that. They can't compete with Amazon, because Amazon will always be able to sell more books than them.
If you'd bought Amazon shares just four years ago, when they were less than $30 each, you'd have made nearly five times your money during a time when most stock market investors lost money. Even during the lowest point of the financial crisis, in March 2009, you'd never have lost money. Buying the company that sells the most was all you needed to know.
If you sell a product people like and want and figure out how to sell it to more customers than any other company, you will rule your industry. If investors are smart enough to know what you're doing, they can make a fortune owning your stock.
Whether it's burgers, bandages, or books, investors owe it to themselves to know about the company that sells the most. In most cases, if the stock is cheap enough, the top seller is the best investment you can make in that industry.
Not all the world's best businesses sell more products than their competitors, but many of them do. And these companies should be on your investment radar screen – if they're not already in your portfolio.
Good investing,
Dan Ferris
Further Reading:
It takes more than just the top revenue numbers to become one of Dan's "World Dominator" stocks. World Dominating companies have thick profit margins, high cash flows, and relentlessly growing dividends. You can buy these stocks today and retire rich.
For a quick course on how to spot a World Dominator – and how to pinpoint the best time to buy – read a few of our favorite World Dominator essays from Dan:
Market NotesINTEL IS CHEAP... AND HAS CARVED OUT A BOTTOM Another tech bottom worth noting today...
Over the past few weeks, we've noted that giant, near-monopoly tech companies like Intel, Microsoft, and Google are trading at super-cheap levels when you strip out their giant cash hoards.
These firms won a race that began in the 1990s... the race to become the dominant suppliers and servicers of the computer age. Their first-place trophies allow them to generate large and reliable cash flows. In the past few months, however, concerns about future growth and the overall market have bludgeoned their share prices. But as we noted yesterday, Google has put in a solid, tradable bottom. So has Intel...
We follow Intel because it's a favorite of our colleague and master stock picker Dan Ferris. Dan loves Intel's dominant position in the semiconductor industry, its huge profit margins, and its current Extreme Value levels of cheapness.
Like Google, Intel had a rough summer. The stock fell from a high of $24 per share to a low of $18. Weeks later, after the company lowered its profit outlook a bit, sellers tried to push the stock below the $18 level. But it held like a rock. Big tech is cheap... and looks like it has bottomed.
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