Sometimes You Should Just Say No

There are always many more stock ideas that make me think, "No!" than make me think, "Yes!" In fact, there are thousands of reasons to say no to a given stock -- and only a handful of reasons to say yes.

And in the long run, we're all better off being picky.

The power word
Most of us hate hearing the word "no," especially if it means not getting a juicy raise or realizing that a new flat-screen TV, game console, or designer handbag just isn't in the budget.

Of course, it's a powerful word, too, and we learn that fact quite early -- much to our parents' chagrin. As seemingly negative as "no" might be, after all, it saves us from breaking the bank, from busting the budget -- and from wasting our hard-earned money on a stock that just isn't worth it.

Here are a few of the situations that find me shaking my head.

Questionable moat? Nope! There are tons of things I like about Google (Nasdaq: GOOG  ) . It shook up the world with its twin missions of organizing the world's online information and revolutionizing advertising, and it's most certainly got an impressive lineup of products -- and more in the pipeline. But although it has a resilient brand, I've never been quite convinced that it constitutes a deep moat. Its rivals are well-capitalized, and there's always a chance an upstart will come out of nowhere and steal its crown.

Debt-laden balance sheet? No way, no how! Movie-rental bigwig Blockbuster (NYSE: BBI  ) has a lot of challenges, including its traditional nemesis, Netflix (Nasdaq: NFLX  ) , and the digital-distribution revolution. It's also entertained some mighty strange ideas -- such as acquiring Circuit City (NYSE: CC  ) . But worse than all of that, Blockbuster's got more than $750 million in debt -- and only $140 million in cash. That's an onerous debt burden in an environment like this one.

I don't understand the industry? Uh-uh. A dry ship? Isn't that an oxymoron? DryShips (Nasdaq: DRYS  ) lost me right there, with its name. Even if it had a better name, though, I'd stay away -- because I don't understand the industry. And if I don't understand the industry, I can't tell if it's a good buy.

Oui, da, si, ja ... yes!
So why would I say "yes"? Four primary reasons:

  • Strong competitive advantage.
  • Strong balance sheet.
  • Great management.
  • Room for growth.

And if it's got all of these and is also trading at reasonable levels? (And let's face it, these days "reasonable levels" are common, given the bear market conditions.) Then I shout "Yes!" from the rooftops.

So what stocks are making me shout "yes" right now? Marvel (NYSE: MVL  ) has built an irresistible brand from its beloved portfolio of superheroes, including the Spider-Man franchise and recent blockbuster Iron Man. Plus, its high-margin licensing strategy helps it rake in a windfall of cash.

Dolby Laboratories (NYSE: DLB  ) has probably fallen off many people's radar given its maturity, but it has a ubiquitous brand that you don't have to be an audiophile to "get." It's also got strong management, with a founder still on board, and a stellar balance sheet with copious cash and little debt.

Both are recommendations of our Motley Fool Stock Advisor investment service -- and they're not the only ones.

Find your positive side -- and positive returns
Casting a critical eye on stock ideas and exerting enough pickiness to say "no" will make you a better investor in the long run -- because saying "yes" too readily will most certainly endanger your returns.

David and Tom Gardner are very careful about what they say yes to -- and that's why their recommendations in Stock Advisor are beating the S&P 500 by nearly 30 percentage points. If you'd like to see what they're recommending for new money now, just click here to get started -- there's no obligation to subscribe.

Alyce Lomax does not own shares of any of the companies mentioned. Marvel Entertainment, Dolby Laboratories, and Netflix are Motley Fool Stock Advisor recommendations. Google is a Rule Breakers recommendation. The Fool's disclosure policy says "yes" to transparency.


Read/Post Comments (4) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2008, at 9:16 AM, reyobnek wrote:

    Based on the author's comments about Blockbuster and its "high" level of debt, he has no idea how capital markets work. Blockbuster is expecting to generate over $300 million of EBITDA this year. Banks, even in today's markets, will allow a company to have leverage of at least 3 times its EBITDA. Since Blockbuster has only $750 million of debt, its leverage is quite acceptable, especially since much of that debt is subordinated.

  • Report this Comment On November 01, 2008, at 12:36 PM, palwil wrote:

    DryBulk Industry they get paid as Crude goes UPPPPPP

    Airline Industry they get paid as Crude goes DOWNNNNNN

    Solar Industry Stocks goes UPPPP. when ???

    Answer me that..

    I'm only 16 months old INVESTOR

    what's so hard about DRY BULK..

    William

    email me ASAP.

  • Report this Comment On November 01, 2008, at 4:17 PM, buyusedtoyota wrote:

    Sometimes you should just trade it!

    Load BBI's 6 month candlestick chart(Bullish Three Outside Up candlestick), with DMI, MACD, Williams %R and other technicals indicating a bullish trend reversal. Making BBI great trade right now!

    Not all stocks are investments, and BBI certainly has a long way to go to convince the street it's turning the ship around, but in the mean time you might as well trade it. 4 times I've traded BBI for 25%, 16.7%, 15.6%, and 25% gains, and about to do it again for a 5th time, this time likely 30%+.

    Of course if you had anticipated those trend reversal signals a couple days early, you would be in an even better trade position. :-]

  • Report this Comment On November 02, 2008, at 8:56 PM, alphatrader745 wrote:

    This article embarasses the author...

    Dry Bulk shipping ...how difficult is it to understand transporting dry commodities such as wheat and corn from one country to another?

    Are you serious?

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