It takes six wins in a row to become the NCAA Basketball Tournament champion. With the quality of the teams in the tournament, it's going to take more than a hot streak to win the title.

The ball won't always go in
Sometimes, the ball just doesn't find the bottom of the net despite a team's shooting talent. Look at Duke and Memphis. These two offensive powerhouses had trouble scoring and found themselves leaving the tournament early.

LSU clamped down on Duke's sharpshooter J.J. Redick, and UCLA seemed to be everywhere against Memphis. Not only did LSU and UCLA play great defense, but they were also able to hit shots when they needed. It was their great all-around play that propelled them into the Final Four and what will help them on their quest for the championship. As they say in sports: Offense wins games; defense wins championships.

All-around companies
There are many ways to generate great investment returns. Small companies offer the promise of getting big. Fast growers offer the promise of getting big quickly. But sometimes, these types of companies can go into short slumps, knocking the price down.

So instead of focusing on companies with just the prospects of a good offense, your money could generate higher returns if you invest in companies with great all-around games. So what makes up a good all-around company? To have a good offense, companies should:

  • Serve large industries with opportunities for increasing sales growth.
  • Have returns on invested capital (ROIC) greater than 15% and higher than their cost of capital.

To play good defense, companies should:

  • Have a solid balance sheet, preferably with lots of cash in relation to its market capitalization to provide a buffer to the company's value during down markets
  • Pay a dividend.

A past champion
According to Wharton School of Business Professor Jeremy Siegel in his book The Future for Investors,Altria (NYSE:MO) was the best-performing stock in the S&P 500 from 1957 to 2003, averaging 19.7% returns per year.

Since 1990, sales have grown at only around 3% per year. But because of operating improvements, operating profits have grown at 7.2%. As a result, Altria's ROIC has consistently been greater than 15%. While the company has more than $20 billion in debt, $43 billion in goodwill and intangible assets, and a $3.5 billion liability for tobacco-settlement charges, I would contend that its balance sheet has been helpful in creating shareholder value. And most importantly, according to Professor Siegel, 4.1% of the 19.7% annual return is from dividend yields.

During those 46 years, Altria had plenty of ups and downs on the court. Yet it still produced amazing returns. That's the type of all-around company we want in our portfolios.

Here are some additional all-around companies that have generated championship returns.


Est. Long-Term Growth

Market Cap



10-Yr. Returns

American Power Conversion (NASDAQ:APCC)






Microsoft (NASDAQ:MSFT)






Claire's Stores (NYSE:CLE)






American Eagle Outfitters (NASDAQ:AEOS)






Data provided by Capital IQ, a division of Standard & Poor's.

These names should be familiar to many investors. American Power Conversion is a market leader in making branded power-protection and power-management products. In fact, there's a good chance that if your computer isn't yet plugged into one of its surge protectors, it will be sometime in the near future -- a growth rate of 13% per year should serve to reach most of us.

Love it or hate it, everyone knows Microsoft, especially the devoted Apple crowd. Given that Microsoft has locked up the operating system and productivity software on just about every PC desktop, future revenue streams are almost guaranteed.

And if you have kids, chances are you've dropped some cash at Claire's, the mall-based fashion accessories store, or at clothing retailer American Eagle Outfitters. And that's because Claire's and American Eagle consistently give its "tween" and teen customers the fashions they are looking for. And since Claire's and American Eagle serve only 1.2% and 1.6% of their respective retail markets, they still have room to grow by adding new stores.

Why do these companies have good all-around games? On offense, they serve markets with sales between $75 and $136 billion while generating solid returns on invested capital, with lots of room for growth. On defense, they have lots of cash and solid balance sheets while paying a dividend to shareholders.

The Foolish bottom line
The 2006 NCAA Basketball championship will not be won with offense alone. The winner will be the team with the best all-around game.

Philip Durell plays to win. That's why he looks for great all-around companies. But he won't buy at any price. He wants them when they are a bargain. That way, he'll have twice the margin of safety, relying on a strong balance sheet and a dividend to carry them through the tough times, good growth prospects to be able to score points in the good times, and a cheap price to generate great returns. For example, when Philip recommended 3M (NYSE:MMM) to subscribers of the Inside Valuenewsletter, he recognized that it serves a diverse and promising consumer base and is expected to grow at 10.5% a year, all while paying a dividend of 2.4% a year. In addition, its ROIC has been greater than 20% over the past several years. 3M has beaten the S&P's return by 6% since Philip recommended it. These are the types of great all-around companies that your portfolio needs to weather a volatile stock market.

To see the lineup Philip has in place to go after the championship, click here for a free 30-day guest pass to the Fool's Inside Value newsletter. Philip's team may not score 100 points per game, but it's in a great position for the long run.

David Meier does not own shares in any of the companies mentioned. Microsoft is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.