Home Run Stocks Still Worth Buying

I've been flying US Airways since I was eight years old. The other day I called to make a reservation, and the operator asked me a familiar question: "Do you prefer an aisle or a window seat?"

While this was a seemingly routine question, it really annoyed me. In all the years I've been utilizing their service, no one ever thought to store this data somewhere? Shouldn't they be saying something more like, "Thank you Mr. DiPietro, I assume you'd like a window seat?" After all, I've requested a window seat every time I've flown, and yet still, no one at the company has had the foresight to suggest storing personal preferences.

This, among many other reasons, is why US Airways will never be a home run stock.

Great companies use great technology
In his book Rules for Revolutionaries, former Apple exec Guy Kawasaki describes many of the necessary attributes of ground-breaking companies. One of the most important qualities is the ability to "think digital, act analog." Thinking digital means that companies must use technology to look at data and mine information to better serve customers. Acting analog is being able to use that information with a personal touch. The execs at US Airways could learn a thing or two from this chapter.

Unfortunately, thousands of companies suffer from this same problem. Some don't even try, others try and fail miserably.

CVS Caremark (NYSE: CVS  ) is a company that at least tries. They have a rewards program that offers discounts and tracks purchases. Last week when I went in and bought $4 worth of Easter cards, the clerk found it necessary to ask for my zip code and birthday. When I asked her why, she replied that it was for "marketing" purposes. Please -- this is not personal, nor does it make me want to provide my information.

The same thing happened when I called Bank of America (NYSE: BAC  ) to ask why my savings account was improperly being charged with a $5 service fee. Lots of impersonal questions from the operator -- questions I knew were not going to necessarily serve me any better as a customer. These companies may not fail -- at least they're attempting to gather data -- but they're not exactly acting analog.

Ever wonder how the once-powerful Barnes & Noble (NYSE: BKS  ) went from being a $45 stock to a $20 stock that's struggling to stay relevant? Sure, they've made some bad operational decisions -- but in the end, they never heeded Kawasaki's advice. Late to adapt their website and use it as a real platform to aggregate customer preferences, people found better options for buying books. Over the last five years, the company's earnings have grown by less than 1% -- not really a stellar record.

The home run stock you're looking for
Fortunately, there are still plenty of companies that know how to think digital and act analog at the same time. These are the types of companies that the analysts at Motley Fool Rule Breakers look for -- those that employ digital expertise to enhance user experience. Here are three companies that have virtually perfected this quality:

  1. Netflix (Nasdaq: NFLX  ) : Not only did Netflix realize that customers would benefit from at-home DVD delivery, but they knew how to use important information. After I watch a streaming movie from my Netflix queue, the company asks me to rate the movie. I don't mind doing it because then I get better movie recommendations -- this is a mutually beneficial transaction.
  2. Amazon.com (Nasdaq: AMZN  ) : This online retail giant has been collecting customer information from the get-go, and I can't even keep track of the number of great recommendations it has given me. Every time I log on to the website, it has book suggestions for me -- and I guarantee you I've spent more money because of their accurate profiling. Again -- I don't mind it, because in the long run, it's served me quite well.
  3. Apple (Nasdaq: AAPL  ) : Not surprisingly, Apple also tops this list. Besides recommending CDs to purchase when I log on to iTunes, Apple found a brilliant way to engage other businesses' technology to benefit themselves, but also their end users -- through apps. For example, over the weekend, my wife and I wanted to eat somewhere new, so she pulled up the UrbanSpoon app on her iPhone, and within two minutes we had a great restaurant suggestion half a mile from where we were standing.

All three of these companies know how to use technology behind the scenes -- it's not in-your-face, obnoxious marketing -- and more importantly, they know how to give you better options that will ultimately enhance your experience.

It's no surprise that Netflix, Amazon.com, and Apple have all been home run stocks from the moment they were offered to the public. Respectively, their stocks have surged by 863%, 8,011%, and 6,572 %. These are home run stocks that still have room to run -- because of their size, it's not likely they'll see quadruple-digit gains again -- but you can bet that the corporate execs at these companies are continually trying to improve your experience.

David Gardner, co-founder of The Motley Fool and advisor for Rule Breakers, is constantly finding companies that fit this bill. Rule Breakers recently unveiled a new company that embodies the digital/analog characteristics to the tee. LivePerson (Nasdaq: LPSN  ) helps clients like Microsoft and Verizon keep individual customers by collecting data on their web-surfing trends. Last year, its revenues increased by 17%, and adjusted earnings more than doubled. The best part about this company is that it's small -- only a $400 million market cap -- so it still has plenty of room to run before it gets discovered.

If you're looking for the next home run stock, you can read all about LivePerson as well as other companies that understand how to profit from "thinking digital, acting analog" for free. We're currently offering a 30-day trial run for Rule Breakers, where you get to see all of David's past and present recommendations. Click here for more information.

Already a member of Rule Breakers? Log in at the top of the page.

Fool contributor Jordan DiPietro owns no shares of the companies mentioned above. Microsoft is a Motley Fool Inside Value recommendation. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. LivePerson is a Rule Breakers pick. The Fool has a disclosure policy.


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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 April 08, 2010, at 7:37 PM, RodrigLJ wrote:

    USAIRWAYS may indeed never be a "home run stock;" but as a very satisified Gold Preferred Dividend Miles member, I have to say that your statement about storing preferences is incorrect. Perhaps you should logon to their website and edit your profile!

  • Report this Comment On April 08, 2010, at 7:54 PM, jeppes wrote:

    USAIRWAYS, I understand your point in that there must be a place to put that info, but I think the point of the writer was, that no one asked.... As a service provider, I ask my customers all the time, where would they like to sit....

  • Report this Comment On April 08, 2010, at 8:01 PM, plange01 wrote:

    ebay already fills with ipads...

  • Report this Comment On April 08, 2010, at 10:07 PM, 4mythreegirls wrote:

    US airways will never get my business again. I am also writing a letter to the CEO showing my displeasure. I was recently flying the shuttle from NYC to DC. The shuttles leave every hour. I was booked on a 7:30 flight and was there in time for the 6:30. Even though they had over 20 seats open on the flight they would not let me get on the 6:30 flight unless I paid a $50 upgrade fee. Dumbfounded, I said, " I just want to go standby" I don't care to pay the $50 bucks". They proceeded to tell me I could not fly standby since it was not a full flight. So I come to find out if the 6:30 flight was full and I wanted to go standby and there was an open seat I could have it for free. But since I had all ready purchased a ticket for a flight and the earlier flight was not full I had to pay the upgrade to get on the earlier flight... Bottom line USAIRWAYS is far from a home run stock and will never see another penny from me.

  • Report this Comment On April 09, 2010, at 12:05 AM, keung5 wrote:

    I question the veracity of your article. CVS has never asked for your zip code and/or date of birth with the exception of obtaining your information for the purposes of filling a prescription. They ARE able to find your rewards account number by asking for your phone number. I AGREE that CVS is not and has not been a homerun type company - as much as it has tried. I doubt that you need to embellish your story with inaccuracies to make your point.

  • Report this Comment On April 09, 2010, at 12:23 AM, pkluck wrote:

    US airways employees usually act like they're pissed I flew with them. Like I was a bother to them. Although most airlines today seem like they hate their customers USAIR is worse than average. The 3 home run companies you mention in your article are very pricey and remind me of the tech boom stocks, I think I'll pass.

  • Report this Comment On April 09, 2010, at 12:45 AM, realitytest wrote:

    US Air is a motley (sorry) crew in terms of quality. Some are simply awful, while others are truly kind and caring.

    I can't count the number of times they've lost my luggage - and been extraordinarily sloppy about the retrieval too.

    E.g. Would YOU like your big luggage carrier rotating endlessly on the carousel of the wrong airport, while they wait ‘til morning (for their convenience) to send someone to remove it??

    So what that they bring it by cab to your home the next day - provided it's still there, that is!

    OTOH they have been extra nice to me in numerous other ways (e.g., allowed me to take the next plane when I accidentally missed my reserved flight. Nope - no fees or surcharges of any sort).

    And - well, the "Good guys" there. give really sincere apologies for what the "bad guys" have wrought (like commanding me to allow my carry on luggage to be stored below the cabin, on an intermediate flight in a two leg journey. Why? Because, there was no more room in the overhead carriers. Since I had arrived last (thanks to their wheelchair service – late), I was supposed to suck it up. I.e. not be permitted a single carry-on bag!

    When they finally caved in, and allowed me ONE (if I could hustle enough to transfer what I absolutely needed from the second bag, rearranging everything). And there was nary an apology OR a helping hand as I scrambled from the wheelchair, to shift the contents from one bag to the other , sprawled helplessly on the ground. And as if that weren’t enough, they continued to shout at me that if I didn't make it snappy, I'd miss the flight - running late through no fault of mine! (And I knew there was no later flight to my home town.)

    I forgot to say I protested that I needed my numerous medications with me in the cabin, not only for medical necessity but because it would lose potency if subjected to the sub-zero temperatures of the shipping compartment.,

    And there was another risk too, Since I take prescribe narcotics for pain, they’re subject to impossible (NON) replacement regulations because they're controlled substances. That meant (as I struggled to make clear to them) that I’d be unable to get more from the medical practice issuing them, if by chance they were lost or stolen (See item one, about luggage getting lost, and later, being left to revolve on the carousel, unattended).

    And sure enough, they WERE stolen - perhaps because of my highlighting that they were narcotics with those associated liabilities. I did this in an vain effort to convince them of the importance of NOT allowing my medications to be placed below the cabin and out of my control.

    (Now I’m getting steamed up as I recall this incident!)

    Then again, the US Air employees at the next junction (AND later, by phone( were genuinely apologetic about the ultra rude cabin attendants on that unfortunate over-packed flight! I still regret I was too rushed to get any names, as I knew they would have bumped me from the flight altogether if I'd so much as taken the few minutes needed to write them down. I have no doubt they would have been soundly thrashed - verbally, at least - for their inexcusable mistreatment of me.

    But again, there's this Dr Jekyll-Mr. Hyde split about the employees and their treatment of passenger rights!

    Not coincidentally, It was this trip when they lost and found my luggage, later being almost oblivious to my urgency in insisting they remove my “found” luggage from the carousel. I had to wait an hour while they tracked it down, too. It was only after I fervently insisted, that they troubled to remove it from the unattended carousel. I said I would NOT wait ‘til the morrow and risk my possessions.

    TIred - it WAS the last flight - the US AIR attendants remaining, wanted to allow it to spin all night at the wrong port where it had been mistakenly unloaded. Never mind the lack of security. This would have allowed THEM to get home earlier. Understandable - as it wasn't THEIR luggage!

    And at some point on this journey, that someone apparently DID pilfer some of my controlled substances - those I hadn't had time to transfer properly during that pressured boarding (after being issue the ultimatums).

    Gee, I was starting this soliloquy thinking to be even-handed, but I see upon reflection, that no amount of apologies make up for the sins of the really derelict employees at US Air. Count me among the pitchfork mob. Surely, the powers that be there, know well enough past a point, which is which so they can fire the ones who mess up so badly!

  • Report this Comment On April 09, 2010, at 8:18 AM, TMFEditorsDesk wrote:

    @pkluck,

    I agree that they are on the pricier side, but all things considered (their past performance and their potential for earnings growth), these stocks aren't that expensive. AAPL is trading for 20 times future earnings; NFLX I believe is 26 times future earnings. Actually pretty reasonable for being leaders in their industries.

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On April 09, 2010, at 10:16 AM, mikecart1 wrote:

    "Do you prefer an aisle or a window seat?"

  • Report this Comment On April 09, 2010, at 10:21 AM, Howard1ii wrote:

    NETFLIX is a great example of a company without the proverbial moat around it to prevent competition. As soon as we can download movies over the internet, why would anyone want to deal with snailmail. Already the redboxes are popping up that provide videos for a dollar a day and their website for finding the boxes and video availability.

  • Report this Comment On April 09, 2010, at 10:39 AM, TMFPhillyDot wrote:

    @Howard1ii,

    Netflix subscribers have the option of dealing with snail mail, but can also stream many movies over the internet. Actually, Netflix would prefer moving in this direction, which they are, because it is less expensive for them. I would argue that while their industry is competitive, their moat is pretty good. They also have a strong brand and first mover advantage, which never hurts.

    Thanks for the comment!

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On April 10, 2010, at 12:52 AM, sheltonclan wrote:

    @keung5 -

    I cannot speak for the author of this article, but my local CVS has asked for my zipcode dozens of times, and yes, it does annoy me.

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