The following article is part of The Motley Fool's "Stock Madness 2006," based loosely on the annual NCAA College Basketball Tournament, a.k.a. "March Madness." Throughout the competition, our writers and analysts will engage in head-to-head competition. You, dear readers, are the fans and referees -- after you read these exciting duels, your votes will determine who moves on to the next round of play. The writer who survives the tournament will be our champion and most valuable "coach."
But, please, make no mistake -- "Stock Madness 2006" is a GAME!
My tournament entry reminds me of one of the finest basketball teams of all time, and I'm not talking college hoops, either. Which famous squad had three hall of famers, two outstanding role players, and the ability to blow out its opponents in the second quarter? Do you remember the "Showtime" Lakers of the mid-1980s? They had three all-time greats in Magic (no last name needed), Kareem (another no last namer) and James Worthy, in addition to fine supporting players such as Byron Scott and Michael Cooper. Let's see how my team of stocks compares.
My three hall of famers are McDonald's
Filling out the rest of my lineup are two of the great growth stories of 2005: NutriSystem
A portfolio consisting of equal weights of all five of these stocks would have provided a return of 238% in 2005. This stellar average return was primarily driven by the luminous performance of NutriSystem, which delivered a 1,163% return in 2005. There's nothing wrong with that, however. In fact, the above scenario illustrates an important point about diversification -- you can capture a percentage of the great gains provided by growth stocks within a diversified portfolio, and all without taking on too much additional risk.
Despite the impressive results in 2005, my team is not prepared to rest on its laurels. McDonald's has seen its profits increase recently, Nike is poised to benefit from international growth opportunities, and NutriSystem is expected to build on its blockbuster 2005 by rolling out additional customized weight-loss programs. Analysts are expecting the weight-loss juggernaut to grow by 36% per year over the next five years. If that ends up being true, we may have four hall of famers on our hands!
Andy Cross' rebuttal
John, I thought you were a good ol' New England boy who would put almost any Boston team first?
Where's your love for the Celtics of the 1980s? Think Bird, McHale, Parish, and a host of great role players.
It may be difficult to argue against the studs of your portfolio -- McDonald's, Nike, and Amazon -- but I certainly have to question your choice of naming your team after the Lakers.
What's next, you'll start cheering for the Yankees?