Double Down on Top Stocks

As consumers, we want to get the most "bang for our buck." To do so, we scour through Consumer Reports and online reviews to ensure we get the best product for our hard-earned money.

As investors, we seek the same attributes in the stocks we buy -- we want the best-performing stocks for the right price. Unfortunately, gauging the future performance and the right price of a company's stock isn't as cut-and-dry as, say, figuring out which dishwasher is the most energy-efficient.

A recent report from BusinessWeek attempted to solve at least one half of that puzzle by determining the 50 best-performing companies from the S&P 500.

The cream of the crop
The 50 top companies consist of names you would have likely guessed, such as Google (Nasdaq: GOOG), Goldman Sachs (NYSE: GS), and Coca-Cola (NYSE: KO). Others, such as CME Group (NYSE: CME) and InterContinental Exchange (NYSE: ICE), may have come as a surprise to non-financial types.

These names weren't drawn out of a hat, either. Among other things, the BusinessWeek survey judged the companies using average return on capital and growth over the past 36 months. It then compared the scores with peers to decide the top guns of each industry.

In other words, they highlighted the companies that create superior shareholder value in high-growth industries. Though this equation seems obvious, investors too often ignore it and instead bet the house on the wrong stocks.

Not everyone is smiling
What's notable is that, despite their inclusion in this exclusive list, many of the top 50 companies have been punished by the market in recent months. Among them:

Some of these drops have been pretty substantial in straight dollar terms. For example, Google has lost $50 billion in market capitalization -- and was down even more before its recent happy earnings report.

The biggest thing that's changed about Google since its drop hasn't been the company itself, but rather investor perception of it. While Google may not be able to sustain 78% annualized EPS growth -- as it has over the past three years -- it's still the dominant player in the powerful market of online search advertising.

Greatness counts for something
The market's recent volatility has created some tremendous buying opportunities for investors with a long-term perspective. Not all of the companies on the BusinessWeek survey are strong buys, per se, but on the whole, they appear to be:

1. Built to last for the long term.
2. Dominating growing industries.
3. Helmed by committed and proven management teams.
4. Governed by the highest corporate values.
5. Consistently increasing shareholder value.

So it didn't come as a surprise to me that fully 10 of the 50 stocks on the BusinessWeek list are active recommendations of our Motley Fool Stock Advisor service. After all, these are exactly the kind of companies that Motley Fool co-founders Tom and David Gardner look for when recommending stocks to subscribers each month.

And then you double down
Most importantly, neither Tom nor David is afraid to double down on great stocks the market has unfairly punished. One example is David's re-recommendation of Netflix in January 2005, following significant losses from the original pick. At the time, David noted:

We're currently sitting on a 23% loss. ... But I am a Netflix believer and was in there as a buyer myself in November. I think this is one cheap stock at $11, backed by a great management team that's going to create value for us going forward.

That bet paid off: Netflix is up 135% since the re-recommendation.  

Taken together, Stock Advisor recommendations are up 60% on average since the newsletter's inception in 2002, versus 22% for like amounts invested in the S&P 500. If you'd like to learn more about the Stock Advisor service, a 30-day free trial is on us.

To take advantage of the offer, click here.

Fool contributor Todd Wenning speaks softly and carries big stocks. He does not, however, own shares of any company mentioned. NVIDIA is a Motley Fool Stock Advisor pick. Coca-Cola is an Inside Value choice. The Fool's disclosure policy is long, but distinguished.