Monday, February 02, 2009

Looking for Future Winners instead of Past Performers

"Past performance is no guarantee of future results." ~ disclaimer on investment documents

One key to successful investing is to find tomorrow's winners instead of betting on yesterday's top performers. I see several advisors pointing out that stocks such as Microsoft and Intel as potential "good value" buys in today's stock market. After all, Microsoft and Intel were the big winners in the tech bull market, still have good businesses and generate lots of cash. Good points, but being a previous winner does not guarantee being a future winner. For example, Dell, Ebay, and Yahoo! all were great stocks in the past, but are struggling in today's environment.

Instead of choosing past winners, my preference is to look for businesses that will be a future winner. Here are three companies that I think will be tomorrow's winners:

  • Amazon (AMZN) - I continue to be impressed with Amazon's ability to deliver great business results during a poor economy. The 2008 Christmas season was their best ever, in spite of the consumer cutting back. I believe Amazon will continue to build market share and grow earnings as they innovate the retail business model.

    In addition, Amazon appears to be interested in providing the backroom supply chain operations for small businesses, which would create significant income if they can deliver.

  • Monsanto (MON) - I believe that increasing the productivity of our food supply will continue to be a major need. Monsanto's seeds significantly increase crop yields, which makes their seeds a valuable product. In a conversation with my spouse's uncle, who is a farmer, he commented that he would stop buying potash (a fertilizer) if prices got too high, but that he would continue to buy Monsanto seeds.

  • Google (GOOG) - At this point, I continue to believe Google's advertising model gives them a competitive advantage. Providing free applications, which are then monetized through contextual advertising seems to be a strong business model, especially if it can be expanded past search. Still a big IF, since Google needs to demonstrate they can emerge stronger from a recession.
  • I've have dropped General Electric (GE) from my list of future winners. Their over exposure to the financial crisis has made them more vulnerable to a catastrophic failure. Although I will keep the shares I own, I will not buy any additional shares.

    Of course, past winners can be a future winner, but there needs to be a business basis. A good example is Walmart, which I thought was going to be surpassed by Costco and Target. Instead, the current recession has allowed Walmart to do very well again.

    Even so, I still think I will invest with my future winners, and not with past performers.

    Disclosure: At time of publication, Amazon, Monsanto, Google and General Electric are owned in both our trading accounts and managed accounts. Microsoft, Intel, Dell, Ebay, Walmart, Costco and Target are owned in our managed accounts. Yahoo! is not owned in any of our accounts.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

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