Investing in winning stocks is easier than you think. All it takes is curiosity. Look around you to see what products and companies are out there. And then start asking yourself, "Where does that come from? Who made that? Who's involved?"
For instance, LCD televisions are a popular consumer electronics item. You see them the instant you walk into your local Best Buy store. But did you ever stop to ask who makes the glass for those things? With just a bit of research on the Internet, you would find out that Corning (NYSE: GLW) makes a lot of them (and is also a big supplier for notebook computer screens). And, if you had invested in that company in early 2003, about the time that LCD televisions began to become popular, you would have tripled your money by now.
So keep your mind open to possibilities like that, and when you have a moment, look a bit further.
Of course, you don't want to throw your money into just anything. Growth and earnings prospects are important, as well as price. So when I engage in this exercise, besides finding out who makes what, I'm also looking for a company that is likely to grow, but is currently trading on the inexpensive side.
Here are three ideas I like that fit all these criteria:
|
Company |
Market Cap |
Expected Annual Earnings Growth |
Forward P/E |
|---|---|---|---|
|
Brocade Communications Systems (Nasdaq: BRCD) |
$2.2 billion |
10.7% |
7.9 |
|
DryShips (Nasdaq: DRYS) |
$1.1 billion |
18% |
3.6 |
|
Western Refining (NYSE: WNR) |
$416 million |
50% |
10.3 |
Source: Yahoo! Finance.
When you contact customer support at many companies, they access internal networks to help answer your questions. That's where Brocade Communications comes in. It provides networking hardware and support for enterprise and service providers. Customers include Dell, Hewlett-Packard, and the federal government. In the first half of its fiscal year, revenue grew by 10.9% and the company swung from a net loss of $90 million to a net profit of $73 million. And the company threw off over $27 million in free cash flow, instead of consuming nearly $130 million during last year's first half. Things are looking up.
Manufactured goods require raw materials. And those have to be moved from where they're found to where they're needed. DryShips plays in this space, moving drybulk goods like coal, iron ore, and bauxite (aluminum ore) around the world in a fleet of 39 ships. These raw materials are then used to make all kinds of goods. It also engages in offshore drilling. Things are looking up here, too. The company turned around a loss from a year ago in its first quarter, helped in part by an increase in net shipping revenue.
You probably own a car and regularly fill it with either diesel or gasoline. If you live in the Southwest or the mid-Atlantic states, there's a good chance that the fuel you use was refined by Western Refining. It takes crude oil and turns it into several different products, including diesel and gasoline. Even though the company reported a net loss in the first quarter, it's been taking measures to consolidate costs and shore up operations. On a slightly longer time scale, refining margins, the difference between the cost of their inputs and the price they can get for their products, have improved since last fall, which bodes well for the business.
Of course, these aren't formal recommendations. But they are intriguing possibilities that arise from looking around and asking, "Who made that?" And the answers to that question can lead to very profitable investments.
