5 Stocks That Could Make Ordinary Folks Rich

Saving for retirement is an extremely difficult task. If you're like me, after work, family, and errands, there isn't much time left over to plan for the future. And who really has all that extra cash laying around, just waiting to be invested? I know I certainly don't.

So what's the good news?

You don't need big bucks, recommendations from Wall Street, or hundreds of hours hunched over company financials in order to start saving. All you need is a couple hundred bucks, a little extra time on the weekend, and the realization that investing in individual stocks is both easier and much more lucrative than you previously thought.

Just look around you
With the recent oil spill, looming federal deficits, and financial troubles in Europe, no one would blame you for being fearful of getting into the market. The truth, however, is that many undeserving stocks have plunged, and there's actually a plethora of opportunities out there today.

Legendary investor Peter Lynch always recommended that investors use their common knowledge and buy stocks that they already knew. In his book One Up On Wall Street, Lynch describes his wife's admiration for L'eggs pantyhose, made at the time by Hanes. His wife liked it so much that it forced Lynch to look into the company, invest in the stock, and ultimately, he made six times his original investment.

In actuality, these sorts of opportunities are all around you. Over the last five years, a time in which the general market declined by 10%, you could have made a ton of money, simply by investing in companies that you already knew! Take a look at what would have happened had you invested $1,000 in each of the following companies:

Company

Details

5-Year Return

Original Investment

Ending Investment

priceline.com

Online Travel Company

826%

$1,000

$9,256

Apple (Nasdaq: AAPL  )

Computers, iPods, iPhones

558%

$1,000

$6,584

ExpressScripts (Nasdaq: ESRX  )

Pharmacy Services

354%

$1,000

$4,539

Steven Madden

Apparel & Footwear

235%

$1,000

$3,347

Hewlett-Packard

Computer Products & Services

145%

$1,000

$2,445

Source: Google Finance; data from 1/7/2005 to 12/31/2009.

Almost everyone has booked a hotel reservation or plane ticket on priceline.com. And I'd be shocked if you've never bought a computer or printer that had the HP label on it. Companies like those and Apple are the obvious ones. If everyone you know has an iPod, an iPhone, an iPad -- then it's almost impossible to not notice the company.

Other times, it takes a savvy eye to recognize a good company. For instance, a few years ago, I should have noticed the convenience and ease at which my mom was ordering her multiple sclerosis medicine by mail. If I had, maybe I would have noticed it was ExpressScripts behind the scenes -- and if I'd made a simple investment of $1,000, I would have quadrupled my money.

So, let's get started!
Now that we've established it's not nearly as difficult to invest as you may have thought, let's take the first few steps. For new or beginning investors, these are the traits I like to see in a stock: a low forward price-to-earnings ratio to ensure good value; a solid dividend yield, and it's always great to find a stock that's trading cheap because of an irrelevant event or a bearish environment. Here are five stocks that I think fit the above criteria:

Stock

3-Month Change (%)

Forward P/E

Dividend Yield

IMAX Corporation (Nasdaq: IMAX  )

(22.5%)

12.3

N/A

Lowe's (NYSE: LOW  )

(21.5%)

12.0

2.2%

Verizon Communications (NYSE: VZ  )

(10.1%)

11.7

7.2%

Exelon (NYSE: EXC  )

(7%)

10.0

5.1%

Activision Blizzard (Nasdaq: ATVI  )

(5%)

13.7

1.3%

Source: Google Finance; data from April 15 to July 14.

Next time your kids are begging you to shell out nearly $20 per person for a movie and some popcorn, know that most likely it's an IMAX theatre they're going to. IMAX has continued to increase revenue this year, in addition to signing 89 new contracts for screens all the way from the U.S. to Russia to Japan. Despite reporting good news time and time again, the stock has been battered down to a pulp, leaving it ripe for you to buy.

How the heck could Lowe's have possibly dropped by 22%?! Sure, unemployment is high and the economic recovery is in doubt, so people are naturally spending less money. But the next time you need a ladder and some fresh paint, chances are it's Lowe's you'll be heading to.

As the leader in wireless carriers, you're probably on Verizon's network (unless you have an iPhone), and most likely you're using one of Verizon's smart phones. In fact, if you're a video gamer, you may have even played one of Activision's games like Call of Duty on a Verizon phone. Activision Blizzard is the largest video game publisher in the world and considering its vast pipeline of new games and past franchises, it's trading at a ridiculously dirt-cheap price.

You may not have heard of Exelon unless you live in southeastern Pennsylvania. That's because this utility provider provides electricity to 1.6 million in PA and over 3 million people in northern Illinois. Because of the BP debacle, it's been lumped in with other energy stocks and has lost ground. But trading at 10 times next year's earnings and paying a fat 5% dividend, this is a truly a stock to love.

The foolish bottom line
Of course there's no guarantee that any of the five stocks above can quintuple in value -- they're just examples of how easy it is to start investing. The point is that anyone can make a sound investment -- all it takes is an observant mind, some extra cash, and the motivation to get started.

Jordan DiPietro owns shares of Activision Blizzard and Exelon. Exelon and Lowe's are Motley Fool Inside Value recommendations. IMAX is a Motley Fool Rule Breakers pick. Apple, Activision Blizzard, and priceline.com are Motley Fool Stock Advisor selections. Motley Fool Options has recommended writing puts on Exelon and Lowe's and a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (27) | Recommend This Article (168)

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 July 15, 2010, at 11:29 AM, tk77mann wrote:

    Just to clarify, Verizon Communications (VZ) is the New Jersey-based telecom referenced in this article, not Verizon Wireless. Verizon Communications owns 55% of Verizon Wireless, and Verizon Wireless is not a publcly-traded corporation. Vodafone Group (VOD) owns the other 45% of Verizon Wireless.

    Verizon Communications has great cash flow since they have decades' worth of depreciable assets whose depreciation is more than VZ spends in new equipment. This gives them a Fee Cash Flow that well covers their generous 7+% dividend.

  • Report this Comment On July 15, 2010, at 11:39 AM, TMFPhillyDot wrote:

    @tk77mann,

    Thanks for noting the difference. It should be changed in the article momentarily.

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On July 15, 2010, at 1:50 PM, itconsultant wrote:

    I am a bit more skeptical of this approach. You cannot purely invest by looking around and investing in those companies whose products or services you may have used. Those are good starting points for research. However, you have to do more than that.

    I am a fan of investing in companies trading cheaply by looking at measures such as P/E, P/B, P/S, P/CF. A good growing dividend yield is good too.

    Again, this is also a good starting point.

    You have to study the financials a bit more, you have to look at the balance sheet to check leverage at the minimum. I prefer to avoid companies where debt is 2x of the shareholders' equity. You should check if they are profitable from an operating income point as well as cash from operations.

    I agree individual investors can invest in the stock market. However, do not make it sound that easy either. remember, making money in any initiative takes effort and time and patience. So, you need to have those qualities.

  • Report this Comment On July 15, 2010, at 2:33 PM, TMFPhillyDot wrote:

    @itconsultant,

    I totally agree with you. I think the point I was attempting to make was not that you should just arbitrarily buy a stock because you are familiar with it or own a product by a company you know. Rather, for beginning investors, a great place to start your research is with companies that you utilize, respect, or have an understanding of.

    Thanks for the comment!

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On July 15, 2010, at 4:50 PM, CustardPies wrote:

    I own three of these five stocks and have been frustrated with the recent declines. Thanks for this article, it has reminded me of my longer term investing goals.

  • Report this Comment On July 15, 2010, at 5:49 PM, steveelcpo wrote:

    "Make you rich" is a provocative term. Are we talking price appreciation and/or secure dividends with regular increases, then reinvesting those dividends. Getting rich slowly over a lifetime of careful, informed investing or trying to pick a 10 bagger several times in a row? I'm glad you added in dividends in the second group because, personally, given a choice between a stock (no dividend) that may go up or continue to slide given economic uncertainty, or a stock that pays a decent dividend (regardless of price appreciation), I have a tough time justifying a non-dividend paying stock. AT&T is another company that pays around 7%. Price has been pretty flat for the last two years at least, but that's ok. I still get the dividend, and so does my daughter. Sell covered calls and you can add another % or two. MLP's and royalty trusts are also good income stocks. When you started talking about companies you already know, I though you were going to say P&G, J&J, etc. I bought some RGC (Regal Cinemas) for my daughter since that is one of the major movie chains where we live. She benefits every time she goes to the movies. Right now, it is cheap, and it pays a decent dividend (abt 5%).

  • Report this Comment On July 15, 2010, at 5:57 PM, sagitarius84 wrote:

    The following stocks have made investors rich for several decades:

    http://www.dividendgrowthinvestor.com/2010/07/14-dividend-st...

    The growing dividends from these stocks are also going to fund my retirement.

  • Report this Comment On July 16, 2010, at 12:22 AM, ViolaLeeBlues wrote:

    I think it also wise to not invest in business you don't understand how it makes money or are not familiar with the products or services.

  • Report this Comment On July 16, 2010, at 1:09 AM, PeyDaFool wrote:

    Despite dropping 21.5%, you really think Lowe's is going to pull a major comeback anytime soon? With our shabby housing market and bleak outlook for the near future, this recommendation may only be suitable for individuals willing to hold the stock for years to come.

    Of course, if you're looking at a very long horizon, it may bank a decent return in time and while you wait you're awarded with a 2.0% plus dividend, but do you really think it's a good short term pick, Jordan?

  • Report this Comment On July 16, 2010, at 1:39 AM, walt373 wrote:

    I'm usually wary of the "buy what you know" advice because I think it leads new investors down the wrong path - they could easily end up buying a stock that is temporarily highly profitable (whose profitability will turn out to be short-lived), or too popular and overvalued.

    These two concepts, long-term business fundamentals and valuation, are key to good returns, and skimming over them doesn't do new investors much good in my opinion. But investors should definitely understand the businesses they are buying too, and so "buying what you know" isn't wrong at all.

    That said, I like the stocks you picked and your overviews of them. Actually ATVI and EXC happen to be my two biggest holdings, so we might be on the same wavelength here =)

  • Report this Comment On July 16, 2010, at 7:45 AM, TMFPhillyDot wrote:

    @PeyDaFool,

    To answer your last question, no, I don't think that LOW is a great short-term pick. But we're in it for the long haul -- that's what the Motley Fool is all about. None of the five stocks I chose above can really make you rich in a few months -- they are rather investments, that over the course of some years, have that superb wealth creating potential.

    Thanks for the comment!

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On July 16, 2010, at 6:51 PM, PeyDaFool wrote:

    Jordan,

    I never meant to insinuate the reason for buying a stock is to get rich in a few months, but, in my mind it would seem rational to put off purchasing any shares of LOW for at least six months to a year, since I wouldn't expect it to outperform in the near future.

    However, as you point out, if you're holding onto it until retirement, then maybe it's not such a bad idea to pick up shares now, while you still have freed up capital. It would save you the trouble of paying trading fees and would set you on the path to building wealth and increasing net worth.

    Great article, keep 'em comin'!

  • Report this Comment On July 20, 2010, at 10:45 PM, TMFPhillyDot wrote:

    @PeyDaFool,

    I actually think that LOW will outperform the market in the near term; not outrageously, but I see shares moving sideways/slightly up while the market stagnates or drops. But I guess we can agree to disagree on that point!

    Thanks again for the comments! Keep those coming as well!

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On July 22, 2010, at 6:28 PM, billypae wrote:

    How are the banks supposed to make any money to get themselves out of this mess? Interest rates are too low to make Citigroup any revenue, which the government overlooks as a source of tax revenue also. The government is being its own enemy. It's like the right hand doesn't let the left hand do anything. If banks really were allowed to make more money through banking, the government would get more taxes and everyone would be happier. We need to raise interest rates instead of worry about the stock market. We need to be more proactive instead of worried and passive aggressive. In Macroeconomics, raising the interest rates alone would increase the supply side of the supply-demand curves of GDP and prices, which would amount to more jobs alone. In other words, raising interest rates would stimulate lending by banks to corporations (supply side) and thereby create jobs. Jobs would then stimulate the equilibrium point to a point along the recovery or growth curve. Jobs help pay back debt or credit cards, and banks get more revenue. We need to help the banking sector. That much is obvious.

    I wish the government would not sell itself short and low for example in Citigroup and downturn share prices by threatening to sell its shares. If the government would realize that Citigroup could return to $50 dollars a share by three years or so in a recovery to NORMAL (as it was 3-10 years ago), individual investors could again buy at the low current prices and take advantage of the huge opportunity. JP Morgan Chase, Wells Fargo, US bank, and HSBC have all made quick strides to recover back to normal stock prices, so why can't we invest heavily in Citigroup collectively WITH the government to make about 10 fold ($4.09 to 50.00 dollars per share would be a huge profit that everyone would benefit from. Wouldn't we?) If the government is tepid, consumer and business confidence is affected too. Government, can we lend more confidence to Citigroup and help invest in a sure fire winner?

  • Report this Comment On July 23, 2010, at 3:42 PM, BioBat wrote:

    I actually think the buy what you know is some of the best investing advice anyone can offer. It's not about chasing what you heard on the news but going with companies and products you know. If you frequent a particular chain, or use a particular product or service, you're going to know long before the analysts on Wall Street whether or not a particular brand you go for is up to snuff. Activision listed above is a great example - they're about to release a long anticipated follow up to Starcraft that my gamer friends can't stop talking about. It's going to generate the company loads of cash (maybe not as much as CoD but a lot). Obviously there's more detail you want to look into but when you take proposed big time sales and see the company has no debt, pays a dividend, and has a forward P/E of around 14, it becomes almost a no brainer stock pick for the long run because it's a cash generating machine in the best of times. Meanwhile, Wall Street continues to talk of the death of computer games so companies like Activision get no love despite continually putting out fantastic products.

  • Report this Comment On July 23, 2010, at 3:42 PM, gimponthego wrote:

    Here's an ordinary stock for "Ordinary Folks" like myself: BIG. Big Lots saw the light..made the switch from discretionary to essential in ample time to bring the price back over $35.60 today..It was trading at $35.50 on 5/6.

    Up $1 today..it's been as low as $31 between 5/6 and today.

    Get out, visit, shop..make your own decisions.

  • Report this Comment On July 23, 2010, at 4:06 PM, Threedollarbill wrote:

    I've tried to follow Lynch's advice too. It's as good a starting place as any. I think it's also is just about being aware of what's going on around you, then you can visit the business (if it's retail), read news articles, and do more research on it if possible. I'd rather at least have this starting point than a business that I hardly understand. Just think if you'd invested in Walmart, Apple, cell phones, computers, etc. when they first started out. Granted you have to be smart enough to get out after their growth cycles reaches the top. I did the same with Netflix, Google, Amazon, which I still own, and they've been good companies.

  • Report this Comment On July 23, 2010, at 5:08 PM, TheWinner4us wrote:

    AMATURES AMATURES,WITH ALL DO RESPECT WE LIKE 3 THAT WILL LAUCH US THE HEAVEN 1 GOOGLE IS THE BEST GREAT COMPANY ,INVESTMENTS IN TESLA WILL ROCKET WHY YOU ASK??well aroud the world gas is high TSLA WILL BE AT THE FINISH LINE WITH GOOGLE ON TOP.. AND FOR ROCKETMAN INVESTMENTS THE GRIFFION CORP. FROM NY,JECHICO TOOK ON CASTLE HARLAN. EXPECT THIS AT 50. EASY SEND THE KIDS TO COLLEGE BUY A NEW YACHT .. BELEIVE ME WE OWN MAJOR LIFE STAKES HERE AND WE PLAY TO WIN ONLY WITH THE BEST AT TIMES GFF WAS NY STOCK EXCHANGE LARGEST MOST HIGH VOL AT ONE TIME BUY BUY BUY 15000 DOW WE HERE!

  • Report this Comment On July 23, 2010, at 5:10 PM, TheWinner4us wrote:

    WE GOT GOOSE BUMPS OUR STOCKS HAVE THE LARGEST VOL alerts GOOGLE ,GRIFFON, TESLA

    WE SEE YOU AT 100. EACH SHAKE IT LOOSE!

    TSLA...GFF...GOOG....

  • Report this Comment On July 23, 2010, at 5:14 PM, TheWinner4us wrote:

    Do to employment circumstances and logiscal matters related to employee matters...

    AMAZON IS OUR RATE A SOLID SELL!!!

    appl-buy to high should buy at lower figure buylow sell high

    exc--gain to be had

    steve madden ALL THE WAY GREAT!SEXY

    HP NOT BAD- should have there own sofware

    we show problems with MSFT Blue scree issues unresolved with w-7 and vista-- problematic"

  • Report this Comment On July 23, 2010, at 5:16 PM, TheWinner4us wrote:

    ROCKET TO THE TOP THE" ARIA"

    MGM

    MGM BEST OF THE BEST TO REPAT TO 100..

    BET ON IT....DURING A RECOVERY HERE..

  • Report this Comment On July 23, 2010, at 5:19 PM, TheWinner4us wrote:

    """PLUG IT IN""" NO GAS NEEDED WITH THE REDUCE NEEDS OF FUEL WE SEE TESLA AT 50. OR TM BUY OUT SOON AT 70.00 ITS SHOWTIME HERE.... as I drove by the gas pump i waived high to the attendent and suggested TESLA ALL THE WAY TO THE TOP"/ TM partnership

  • Report this Comment On July 23, 2010, at 5:27 PM, wolfman225 wrote:

    @TheWinner4us:

    Please, stop SHOUTING! None of our eyes are "deaf".

  • Report this Comment On July 23, 2010, at 5:28 PM, wolfman225 wrote:

    I just checked. This guy's net even a real member. Just another of those PIA spammers wasting our time.

  • Report this Comment On July 23, 2010, at 7:16 PM, Othersider wrote:

    We may need a captcha for our comments.

  • Report this Comment On July 23, 2010, at 11:17 PM, philkek wrote:

    Thanks MF and fellow fools. This is good thought provoking writing about investing. I'm still learning fundamental details I should have learned long ago. Keep up the good writing that helps the little guy along the way. Long live the middle class in a free America.

    Better Business Bureau tells us to Investigate before we invest. Let the homework begin.

    Your article offers hope to all who will listen. Fool on for profits.

  • Report this Comment On July 24, 2010, at 1:25 PM, radicalaccountin wrote:

    It's all about timing. I think of technology as a good stock pick, and got on board with Apple, but with the wrong timing, someone could have lost a bundle.

    What is "everyone" doing now, that they weren't doing before? That's a starting place for a new stock pick for a consumer item. But most fashion labels won't turn into good stock picks, so I don't even do my research on those. Maybe I should? But from a street point of view, it won't be Steve Madden. Great stuff two years ago, but nothing fits now.

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