Look close enough at your portfolio returns and you might see a pattern playing out. It's likely some of your best individual buys are actually follow-up purchases of stocks you already own.
That's not surprising, considering how much more familiar we are with the companies in our portfolios compared to brand new investment candidates. For that reason, picking from among your favorite stocks can make for a great investing strategy. With that in mind, here's why three Motley Fool contributors are building bigger positions in Stratasys (SSYS 1.43%), Activision Blizzard (ATVI), and WhiteWave Foods (WWAV).
Brian Stoffel (Stratasys): Before last week, 3D printing specialist Stratasys accounted for about 2.5% of my real-life holdings. Then the company released deeply disappointing preliminary earnings results and the stock fell over 30%. I bought enough shares during that swoon that the company now accounts for 3% of my holdings.
What made me so confident to buy after the drop?
The main reason for Stratasys' fall was the performance of its consumer MakerBot division. Many (myself included) hailed the 2013 acquisition as a great move. It turns out we were wrong. The company took a goodwill writedown on the acquisition, and it's not difficult to see why.
Revenue growth in MakerBot sales slowed from 80% in the preceding quarter to 7% in the last quarter of 2014. A quick look at Glassdoor makes it clear MakerBot isn't a great place to work, and the company's fifth-generation printer is getting awful customer reviews.
Makerbot is broken, but it presently only accounts for 12% of Stratasys' revenue. Stratasys -- the larger parent company with a focus on high-margin industrial and commercial printers -- is not broken.
Organic sales grew 25% last quarter, and management thinks it can keep that pace up for years. This would be a huge feat. Stratasys also announced a new investment plan that will crimp short-term profits, but set the company up to be a major player in the long run.
Trading right now for cheaper than ever, roughly 31 times non-generally accepted accounting principles earnings, I bought because today's price already reflects the disappointment from MakerBot, but has huge potential upside when it comes to the other 88% of the nonconsumer business that has been Stratasys' strength from the very beginning.
Demitrios Kalogeropoulos (Activision Blizzard): Compared to last year, Activision's 2015 plan sounds flat-out boring. There will be no major World of Warcraft expansion to limit player defections in that aging franchise. And there's nothing comparable to the blockbuster Destiny launch or popular Diablo III release to supercharge growth. In fact, management this month forecast an 8% drop in revenue for 2015 and 20% lower profit on the year.
But as a long-term shareholder, I'm more interested in Activision's plan to have 10 top franchises in its portfolio by the end of the year, up from just five at this time in 2014. Destiny joins Call of Duty and Skylanders on that list, as will some big bets on new markets and new business models. Call of Duty Online, in China, and Heroes of the Storm are just two examples of Activision's expansion into free-to-play gaming and fast-growing emerging markets.
The company likely has a few innovative twists up its sleeve in this year's Call of Duty installment, and management last week hinted at several "unannounced initiatives" that could push results higher in 2015 and 2016.
But even with the product slate just as it is, Activision should have no problem generating enough cash to make big investments in future hit franchises while paying down debt and boosting capital returns through buybacks and dividend hikes. And valued at less than 20 times earnings, with a broadening portfolio, the company looks like a good enough buy here that I'm jumping back in.
Tamara Walsh (WhiteWave Foods): One of the best things about investing in promising growth stocks is that you can confidently and gradually add to your position, thereby enabling compound interest to juice your returns over time. I first bought shares of WhiteWave Foods in 2013 for about $19 per share. The stock is up more than 83% since then and trades just north of $35 per share today. However, that won't stop me from adding to my position once again.
I plan to buy more shares of the consumer packaged foods and beverage company, despite the stock now trading near the high end of its 52-week range. If we look beyond the stock's recent price movements, it becomes clear WhiteWave is still in the early stages of its growth story. Not only does WhiteWave operate in the increasingly lucrative organic foods and beverages space, but the company is also growing its portfolio of leading brands through smart acquisitions.
For example, WhiteWave coughed up a cool $600 million in 2013 to acquire Earthbound Farm, now the largest organic produce brand in North America. More recently, WhiteWave scooped up dairy-free beverage and desserts maker So Delicious for $195 million. These acquisitions should pay off for WhiteWave Foods in 2015, with its Earthbound, Silk, International Delight, and Horizon Organic products each on pace to becoming billion-dollar brands.
International expansion into China, the world's largest consumer market, is another catalyst for the stock. WhiteWave teamed up with one of China's largest dairy companies, Mengniu Dairy, and is set to begin sales in the nation in the year ahead. In addition to these catalysts, WhiteWave's stock looks attractively priced for long-term investors, despite the recent run-up in its share price. Moreover, WhiteWave Foods appears inexpensive with a price-to-earnings growth rate of 2.29, which is below the industry's average PEG of 2.85. I plan to buy the stock again for these reasons and own this name for many years to come.
