This article is part of our Rising Stars portfolio series.
It's rather nice to see II-VI (Nasdaq: IIVI) spiking 23% today after a strong third-quarter earnings report -- but let's not get carried away.
Yes, I picked this company for my real-money Rising Stars portfolio earlier this month, and yes, I'm certainly happy for all who followed my advice. But I thought I'd use this opportunity to reiterate what's really important in investing, in hopes that it will carry more weight on a day of good news rather than bad.
Decade drivers
My style of investing is all about finding stocks for the long haul: companies whose strong competitive advantages will help them exceed expectations, even slightly, over the course of many years. That's really the key to my happiness, anyway.
If you remember from my buy report, I have three main reasons for thinking that II-VI will provide this long-term happiness:
- High barriers to entry
- A sound, proven, long-term business model
- Secular growth in target markets
Today's earnings beat the Street's expectations -- a hugely silly game which says more about the futility of analysts trying to guess short-term results than about the companies themselves. More importantly, II-VI management once again raised its own guidance for the rest of the fiscal year.
There are still plenty of competitors to worry about, and you can bet that Cree (Nasdaq: CREE), Northrop Grumman (NYSE: NOC), Goodrich (NYSE: GR), and Dow Corning -- a jointly owned subsidiary of the deep-pocketed Dow Chemical (NYSE: DOW) and Corning (NYSE: GLW) -- will keep the pressure on. Expect more than a few down days for II-VI in the years to come. Still, I think the company's moat will help it beat the market over those decades.
A motion for emotionlessness
My entire Rising Stars portfolio is performing extremely well in the early going, but I'm taking it all in stride. I invested through the horrible economic crisis that saw nearly every pick I made for Motley Fool Stock Advisor, for example, get hammered on a regular basis. In those dark days, it was tough to stay focused on long-term value drivers. But investors who were able to keep that focus and their emotions in check have been richly rewarded since.
Again, that's why I want to share this message today. We'll enjoy II-VI's paper gain and dig more deeply into the earnings report to see whether we want to add to the position. And on those inevitable future days when one of our stocks takes a big hit, we can remember this lesson, keep our heads about us, and make sure the long-term value drivers are still in place.
Add II-VI to your free, personal watchlist.
