Years ago, economist/financial consultant Ira Cobleigh wrote a series of books called “Happiness Is A Stock That Doubles In A Year,” and each featured a few dozen companies priced under $5/share. The list usually included tiny oil and gas explorers, and some gold and silver miners, with a few computer and retail issues rounding out the list.
Cobleigh was a good stock-picker. He was talented at finding long shots that sometimes paid off big while avoiding those that were also-rans. Many investors are still searching for gold at the end of the rainbow. Since Cobleigh is no longer with us, they study the big winners of the past, analyzing them carefully and trying to figure out what made them so profitable.
No Simple Formula
There is no simple formula for picking great stocks. For one, the market is a moving target, so a strategy that worked one year may fall flat the following year. Also, economic conditions, valuations, and sentiment are just a few of the many criteria that affect stock prices and they also fluctuate.
Nevertheless, many wildly successful stocks share certain similarities. The following is from NASDAQ’s website: “Although the most successful stocks tend to change over time, their characteristics are often the same. For instance, successful stocks or companies are often profitable, outperform the S&P 500 for decades, and are usually household names.”
And clues about how a stock may perform are all over the place. Investment advisory Cabot Wealth Network compiled a list of nine characteristics exhibited by solid growth companies and one of these can be found by simply focusing on the bottom line.
According to Cabot, “Companies that have positive earnings and that are growing those earnings are far more likely to bring you investment profits than those that are unable to make a profit. If a company isn’t making money now, there’s no guarantee that it will ever make money. And if it doesn’t make money, its stock won’t get very far.”
Cabot acknowledges that some stocks, such as Amazon and Tesla, were big winners long before the companies made any profit, but the market usually doesn’t work that way. “In general, your odds will be better if you invest in companies that have already proven that they have a successful business model, like Alphabet (aka Google), and then climb on board while they work to grow that business.”
Other factors Cabot suggests looking for are companies with little or no debt, which makes it easier for them to take advantage of opportunities that may come along. This also helps businesses navigate their way through tough economic times. Other potentially good indicators are: Companies that can potentially address a large market, and insiders owning a significant number of shares, since this gives them an added incentive to drive the stock price higher.
Easily Overlooked
Financial and investing advice company The Motley Fool also sees opportunities in buying shares in companies expected to increase their profits and/or revenues at faster than average rates. Its conclusion: Shareholders of companies that do this for extended periods of time are rewarded with big returns.
“Growth-oriented companies tend to have savvy leadership teams focused on innovation, along with sizable market opportunities,” The Fool points out. “They’re often on the forefront of macro trends such as the rise of e-commerce and advances in financial technology.” Amazon and Alphabet are just two of many examples of this.
And according to The Fool, growth stocks share characteristics, and the best ones are companies whose profit margins increase over time. “Profit margins that are negative but become positive while an investor holds the stock can result in significant share price increases, generating very high returns for the investor’s portfolio…These companies are lower-risk investments and are usually more suitable for new growth stock investors.” The Fool also adds to this list strong sales growth, earnings that are forecast to grow and debt that is manageable.
Of course, while all of these are very important, they are still not a guarantee that shares of a company won’t plunge. If an investor purchases shares just before a very sharp market selloff, they could easily be pulled down along with many others. This is so even if they are highly regarded on The Street. Even great companies sometimes run into headwinds that take a toll on revenues and profits, and some investors cut their losses and get out at any price, driving prices still lower.
The 25 Best
More than 28,100 publicly-traded US companies have been analyzed in the last century, and this has led to an amazing discovery: The 25 best have created nearly one third of all shareholder wealth.
According to Visual Capitalist, “Just 0.1% of stocks have added over $17.8 trillion to investors’ wallets.” Visual Capitalist is one of the fastest growing online publishers in the world, and it focuses on markets, technology, energy, and the global economy.
Henrik Bessembinder of Arizona State University compiled the following list of the best stocks of the last century. What’s immediately noticeable about these is that all are household names whose products and services everyone is familiar with.
Bessembinder pointed out that Apple created nearly 5% of all shareholder wealth thanks to the popularity of its iPod and iPhone, with its ability to develop new and updated products and their great marketing team.
He also observed that ExxonMobil is the only non-technology company among the five best stocks. Exxon and Mobil’s merger in 1999 was at the time the biggest merger in history, briefly making ExxonMobil the world’s largest public company based on market cap. More recently, the company enjoyed record profits in 2022 because of high oil prices.
Following are the 25 best stocks on Bessembinder’s list: Apple, Microsoft, ExxonMobil, Alphabet, Amazon, Berkshire Hathaway, Johnson & Johnson, Walmart, Chevron, Procter & Gamble, IBM, United Heath, Altria, Merck, Home Depot, Coca Cola, GE, JPMorgan Chase, GM, Eli Lllly, Oracle, Visa, Mastercard, Pepsico, and Pfizer.
Of course, no one can predict how these or any other investment will turn out going forward. Still, so many people beat their brains to find big winners when all they had to do was buy shares in a few great stocks and let them ride.
Sources: cabotwealth.com; fool.com; nasdaq.com; visualcapitalist.com; zerohedge.com
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
