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Investor fear continues to grow.
I can't say that I blame them. I am nervous, too. The global economy is slowing down. Europe is a mess. The U.S. economy is stuck, and China may be in for a hard landing. No wonder investors are pulling money from stocks and mutual funds.
But that could turn out to be a huge mistake. Here's why.
Let's get in the game
Federal Reserve Chairman Ben Bernanke has pushed interest rates to near 0% in order to stimulate the economy. Low rates and a little inflation have turned real bank interest rates negative, turning cash into trash. So cash sitting in the bank costs investors money, today.
That's no good.
Bernanke wants people's cash off the sidelines and in the game, buying riskier assets in order to help jump-start the economy. OK, Ben, we'll play along. But Fools like you and me will do so on our terms, investing in truly great businesses at attractive prices.
I want to go over three stocks that are worthy of your hard-earned dollars. Not only do Motley Fool advisors suggest they be a part of any portfolio, but several of our top analysts own them in the real-money market-beating portfolios they manage for The Motley Fool.
Let's see why they're so attractive today.
Alyce Lomax has turned socially responsible investing principles into market-beating returns. Costco (Nasdaq: COST ) , the warehouse retailing wonder, is one of her top picks. Strictly looking at the numbers (P/E of 25.5, 16.6% earnings growth), Costco never looks cheap. But Costco doesn't need to be cheap to earn great returns. Alyce says it's "a premium company that's worth a premium share price," and she loves how management treats the employees. No wonder stores are so profitable even with razor-thin margins!
Costco's magic is in its business model. Although it's known for its bargains, Costco serves "a more affluent demographic than many discount retailers." Dollar General (NYSE: DG ) and others have made a killing buying and selling a limited number of items at super-low prices. But Costco can do the very same thing with anything from chewing gum to fine crystal. The key is passing along fantastic savings to its customers, no matter what they want. In fact, members are willing to pay between $55 and $110 per year just for the privilege of walking in the door. And it seems like they never leave, as retention rates hang out near 88% every year.
As a result, Costco has a business that not only stands the test of time but continues to generate gobs of cash flow.
Panera Bread (Nasdaq: PNRA ) is one of Jason Moser's family's favorite restaurants. It's one of my family's, too. In fact, my wife is known as Ms. Panera on my daughter's soccer team. Whenever the team is playing in a tournament, she gives everyone directions to the nearest location for some between-game nourishment and bonding.
It should be no surprise that everyone can find something they like at Panera. Not one of the 17 girls, their parents, or their siblings has ever complained. That's because "from soups and sandwiches to bagels, coffee, and myriad other delights, Panera is a place where you can eat breakfast, lunch, and dinner."
Jason admits "it's tough to value Panera on a discounted cash flow basis because it uses much of its free cash flow to invest in new stores." But that doesn't mean we shouldn't place an order for some shares.
Panera's return on capital recently eclipsed the 20% barrier. That's a lot of bagels generating super returns for shareholders. A growing company earning 20% returns has been a great recipe for many success stocks over the years.
An Internet giant
When tech guru Eric Bleeker speaks, I listen. Eric says "Go with Google (Nasdaq: GOOG ) ." I should probably stop there, but I won't. There's plenty to say about Google's greatness.
Google is the undisputed leader of Internet search, turning billions of keywords searches into billions of dollars of free cash flow every year. In fact, Eric says Google's "dominant position in search should remain unchallenged for the foreseeable future." For the most part, that's true. But Eric also rightly points out the Google has fallen way behind Baidu (Nasdaq: BIDU ) in China and that Yandex (Nasdaq: YNDX ) is the top search dog in Russia.
Google isn't resting on its laurels. The success in search has spawned lots of new products that look destined for greatness. Mobile search is now generating $2.5 billion of sales, up 150% over last year's count. CEO Larry Page believes "high-usage products will make a lot of money over time for well-managed technology companies." That's why he's excited to see 200 million people use Google Chrome as their browser, 190 million Android devices sold, and Google's Top 20 Display Network deals increase from $2 million to $15 million per deal.
Don't bet against Page and the crew at the Googleplex; bet with them. Google is super attractive at 20 times earnings with more than $40 billion of cash to invest in its future. Buy some shares for your portfolio.
The Foolish bottom line
Costco, Panera, and Google are strong companies built for the long run. These businesses generate stellar returns for shareholders and have what it takes continue to do so going forward. That's why the advisors recommended them and the Risings Stars purchased shares. Over time, they would be a welcome addition to any portfolio.
Looking for more great investment ideas? Million Dollar Portfolio advisor Ron Gross has put his 5 top picks, the "best of the best" of The Motley Fool's newsletter universe, into a special report. And it can be yours absolutely free. Simply click here to let me know where to send it.