A well-crafted watchlist is critical to smart investing: it can help you find attractive buying opportunities and it can save you from bad decisions.
After all, investors can be their own worst enemies. We overreact to the day's news, which leads to rushed decisions driven by emotion. A watchlist can help you slow down the process, examine the risks, and essentially take a deep, money-protecting breath.
But what to put on your watchlist? Today, Duke Street advisor Rich Greifner shares three companies that have taken up residence on his watchlist and one that has since tumbled off, to show how he makes use of a watchlist. By the way, the Fool now offers MyWatchlist.com, your customized hub to follow the performance and Fool news and commentary about the companies you're watching.
One to watch
Simpson Manufacturing (NYSE: SSD ) makes metal brackets. The brackets are used to attach lumber to lumber or lumber to concrete. Yes, it's riveting stuff, and it sounds a lot like a low-cost commodity. But here's where it gets interesting: Simpson brackets are now written into many localities' building codes, so homebuilders have no choice but to use these fasteners. And where it's not in the code, it's become the de facto standard, which gives the company pricing power.
But even with its bracket racket, this company's not a slam-dunk buying opportunity. Astute investors -- or really, anyone who's caught five minutes of the news in the past year -- are aware that U.S. homebuilding isn't exactly the place to be. And Simpson is headquartered in California, adding insult to the injury that is today's housing market.
The company has worked to diversify globally, with its international presence growing from 5% to 23% of sales over the past decade . But Simpson's international division is still young. Rich tells me he's in watch-and-wait mode, getting a sense of the success of international operations while watching for a rebound in domestic homebuilding.
Two to watch
Blue Nile (Nasdaq: NILE ) is another company whose great business model is hampered by a less-than-robust business environment. The company boasts the rare and powerful negative cash conversion cycle. Unlike its rivals, which have to purchase inventory in advance, rent retail space, and hope the right buyer comes in, Blue Nile collects cash from its buyers before it purchases a stone.
While the business model is a long-term winner, a recession is not exactly the best time for a jeweler. Rich has yet to see the economy-spawned pessimism priced into shares. He's waiting for a discount on this buy-to-hold gem.
Three to watch
Baby boomers love their RVs. OK, maybe that's an overly broad statement, but there is an affinity for life on the road among the growing retiree set. But, as Rich says, folks in that demographic are hurting right now, and they're holding onto their savings instead of hitting the open road in a rolling house. That's bad news for Drew Industries (NYSE: DW ) , which makes parts for RVs as well as for manufactured housing.
But this well-run company might be nearing a rebound in the tough economy. One Fool analyst pegged it as one of his Superball Stocks (as in ready to bounce back in a major way) and it's well-positioned to take advantage of an attractive demographic trend. Rich is watching.
And one to go
But he's no longer watching Starbucks (Nasdaq: SBUX ) . The company had been on Rich's watchlist for more the past year, and he has been impressed with the company's recent execution and improved focus. And it's not that the coffee-seller's success isn't sustainable. Starbucks is just too expensive (the shares, not the coffee, although ...).
"It's a great company and everyone loves it, but the share price would have to drop 50% before I'd be interested," Rich said. "I kept it on My Watchlist waiting for an attractive price to pick up shares, but it never came into a range I was excited about. Sometimes it works out, sometimes it doesn't."
And that's exactly why it pays to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click here to start building yours, or click below to start following one of the stocks mentioned above:
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