Legendary investor and One Up on Wall Street author Peter Lynch had a simple piece of advice: Buy what you know. Most investors find that what they know the best are the things they spend money on every day.
But it's not just enough to go down your shopping list and buy shares of all the companies that make those things. You also have to be smart about picking companies that can actually profit from the popular products they sell. With that in mind, here are five stock picks that combine the simplicity of the buy-what-you-know mantra with the potential for rising share prices over the long run.
Generations of Americans have grown up with Disney entertainment. From its long history of creating go-to destination theme parks and making landmark movies to its more recent rise as a television and multimedia giant, Disney defines our national culture, both here and with its many international ventures.
But despite its long history, Disney continues moving forward. Its purchases of Pixar, Marvel, and most recently Lucasfilm promise a growing library of desirable content that will draw interest from the many companies seeking to deliver entertainment to their customers. Moreover, Disney's growing reach across the globe will broaden its customer base to serve billions of people worldwide. The future is bright both for Disney and for its shareholders.
Americans love cars and trucks, and Ford has long been a top player in the auto industry. Its F-Series of pickups has consistently topped the list of best-selling vehicles in the country for years, and its Ford Fiesta is attracting huge interest from the new generation of Millennial car-owners.
From an investing standpoint, Ford has crushed its competitors. General Motors and Chrysler both went bankrupt, with GM taking on the moniker "Government Motors" because of the U.S. Treasury's huge stake in the automaker. By contrast, Ford has gotten its credit rating back up to investment grade, restarted its dividend payments, and brought its stock from the brink of collapse to deliver huge gains over the past four years. Ford faces struggles in Europe, but it still has further potential to grow as it looks for new ways to boost sales both domestically and abroad.
Speaking of cars and trucks, you're probably all too familiar with how much you pay for gasoline. Even with all the new oil and gas discoveries everyone's talking about, prices at the pump just keep rising.
With its refineries and gas stations across the country, Valero is benefiting from cheap oil, paying less for newly produced domestic crude and then earning big profits on more expensive refined products. As long as those conditions last, Valero is poised to keep a healthy bottom line, and that will make shareholders happy with the stock.
Whole Foods Market (NASDAQ: WFM)
Another popular trend has come from the grocery industry. Rather than looking for the lowest-price option, millions of Americans are seeking healthier food, and they're willing to pay up for a wide selection of natural and organic foods. Whole Foods has capitalized on that trend with massive expansions that now give customers across the nation access to its premium-priced offerings.
For investors, Whole Foods' "conscious capitalism" may seem like a drag on profits. But by demonstrating its commitment to sustainability, Whole Foods supports its popularity among socially conscious shoppers. Shareholders have reaped the rewards from the willingness of those shoppers to keep visiting "Whole Paycheck" for their grocery needs.
Apple's mobile devices need no introduction, as everything from its landmark iPod to the iPhone and the newest iPad Mini has produced strong sales. With their premium prices, Apple's products haven't gained quite as much traction in overseas markets with less affluent customer bases, but the company has still done a good job with international growth.
Investors have been disappointed with Apple lately after a massive run-up for the stock. But unless you believe that Apple's products will fade away completely, the stock looks like a bargain at its current price, down by more than a third from its highs just last fall.
Profit from what you know
Many investors remember Peter Lynch's advice and buy what they know. But the smartest ones invest in companies that will make the most money from their customers' purchases and pass on those profits to their shareholders.
Fool contributor Dan Caplinger owns shares of Apple. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends and owns shares of Apple, Ford, Walt Disney, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.