Invest In What You Know: Five Companies That The Simple Dollar Recommends

I subscribe to the general philosophy that you should invest in what you know. Although I currently don’t own individual stocks, I have begun following the stock market with great interest and have been keeping an eye on what makes money and what doesn’t. What I’ve seen, time and time again, is that companies that I have a strong impression of are doing well, while companies that give me a negative impression are doing poorly.

What’s my technique? While I pay some attention to their businesses, I mostly am interested in their products. If a company is doing things that excite me, I tend to want to buy their stocks. If a company is not exciting me, I tend to want to sell their stocks. Again, I’m not all that interested in their business moves; I’m more interested in what their public perception is.

That being said, here are five companies that I would put money in for a solid profit in the next year. You could even call this “The Simple Dollar 5″ if you’d like. The numbers I’m quoting are those at the close of the market on December 6, 2006.

Apple (AAPL, @ 90.01)
The top Christmas dream gift of many of the people on my Christmas list are products made by Apple, but in different genres. A thirty-something woman wants a new Powerbook, my oldest niece wants an iPod nano, and my oldest nephew wants credit at the iTunes Music Store. Apple’s products elicit a very strong sense of desire due to their very effective marketing and design, and the iPod’s supposed competitor, Microsoft’s Zune, is flopping like a whale out of water. 2007 is expecting to finally see the iPhone, an iTV, and continued development of their core brands, which means Apple is slowly moving more and more beyond being a mere computer company. They’re exciting, they’re growing, and they’re making products people want.

Hasbro (HAS, @ 27.19)
Hasbro is a game and toy maker that has quietly been purchasing most of the major brands in the last several years, including Super Soaker, Milton Bradley, and Parker Brothers. Recently, they’ve been strongly advertising and refreshing some of their core brands (Monopoly, Magic: the Gathering, etc.) with great targeting, resulting in a recent quarterly profit bump of 8%. For the future, their appearances at the recent toy shows have been outstanding, and they possess licenses for two of the biggest franchises in the next year, SpiderMan and Transformers. I’m continually impressed by the quality of Hasbro’s products and their customer service, and the wish lists of many of the children and teenagers I’m familiar with are loaded with items produced by Hasbro, telling me that their sales numbers in the fourth quarter will be good.

Whirlpool (WHR, @ 86.70)
With the housing market cooldown, why would I be on board with an appliance maker? The reason is simple; as the housing market continues to stagnate, people start turning into how to improve their own homes since they can’t get a reasonable price for selling them and, after an adjustment for the lack of new homes (which has already happened), sales will go up for quality appliance makers. Whirlpool is in a very strong position in the home appliance market with their recent purchase of Maytag and their continued promotion of the KitchenAid brand.

Riverbed Technology (RVBD, @ 32.65)
Riverbed is going to be the AMD to Cisco’s Intel in a very short period of time. Their networking products are competitively priced and are of sufficient quality for them to quickly break out into a strong second place in the networking equipment market. 2006 has been an incredible year for them, with a 1600% raise in total equity and they’re moving closer towards profitability with every passing day. Based on recent networking orders I’ve seen, many people in the IT industry are moving to Riverbed equipment if Cisco doesn’t precisely match their needs.

Lowe’s (LOW, @ 31.64)
This stock is far lower than it should be, simply because of people panicking over the housing market, yet the company’s earnings are up vastly this year compared to 2005. That’s because Lowe’s has a more diverse clientele than the home contractor; I often shop at Lowe’s for materials and I’m about as far from a home builder as a person can be. All I really have to do to judge how a chain store is doing is keep an eye on their parking lot versus the parking lots of competitors, and even during this housing lull, Lowe’s always has customers. The same doesn’t seem to be true of Home Depot, at least not in this area.

So, the current value of The Simple Dollar 5 (or as I’ll call it, TSD5) is 268.19 as of the close of the market on December 6, 2006. Each month for the next year, I’ll revisit this list to see how it performed in comparison with the general indexes.

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...

5 thoughts on “Invest In What You Know: Five Companies That The Simple Dollar Recommends

  1. J.D. @ Get Rich Slowly says:

    Using my own super-duper top-secret non-scientific stock picking method, I would not buy AAPL right now (80% increase in six months is scary to buy into) or HAS (50% increase in six months). WHR is iffy, too, because it’s seen a big increase over the past several months, and because I don’t have a feel for them. I don’t have a feel for RVBD, either, and it’s gone up, too, but based on the fact that you mention they’ve got up-and-coming technology, I’d have to take a look at them. Of the five you mention, only LOW has any real appeal.

    I prefer to buy stock in large companies (which most of those you listed are), but after they’ve experienced some sort of setback. What do I mean by this? I bought GM when it had taken a beating earlier this year. I bought MSFT after it fell mid-year. I bought UPS after it took a dive in the late summer. And right now? Right now I’m salivating over F. Ford’s stock is down 20% in the last month, 12.5% in the last week. This is PERFECT. I’d have to do some research, but I suspect this is exactly the type of thing I’d like to put my money into.

    I should write an entry about how I came to this investing method. Short version: I was in an investment club about five years ago. We were idiots, and bought all sorts of stuff after it had already gone up. We got burned, and bad. I learned then to buy stuff that has dropped…

  2. Trent says:

    Good advice, J.D. My general philosophy is that I only feel comfortable with companies that I’m familiar with “on the ground;” in other words, companies whose business I am familiar with as a customer or as a close associate of customers. Generally, the companies that cater well to their customers seem to do better, and these are five companies that, in my impression, seem to cater well to their customers right now.

    I will admit that LOW is probably the one I feel the best about right now, given all factors – I think it’s really underpriced and I’m pleased with them on the ground, too.

  3. D says:

    I own Whirlpool through its acquisition of Maytag. Which of course I owned because I have Maytag Appliances in my home and at the laundry. I think this is a hold as well.

    The others are not (remember I have no training) for me, for I stick with what I know and how things flow.

    Apple to me is a one time purchase that may do bad tomorrow. Although, I see your logic when compared to Zune.

    Hasbro – long standing company. But being removed from the toy scene, I don’t feel I would be abreast of any impending situations.

    Riverbend – very interesting, but I would need to research. Find where they are in my life.

    Lowe’s will most likely never be in my portfolio. We spend large somes of time and money at all the big hardware/construction stores. Lowe’s has always had the worse layout and service. To me it is, sorry for this, a womans hardware store, like Ace or TrueValue. I would go there, possibly for bird feeders or light bulbs. But when it comes to windows, doors, heating, plumbing, etc…I am off to Home Depot or Menards.

  4. I have gotten out of the individual stock market game, but I like what JD is saying. I used to do that as well. The only problem is when you invest in a Lucent or Worldcom thinking that the small dip will correct itself and things will get back. Perhaps that’s a reason to avoid the bargain technology stock with the exception of something like Microsoft or Intel – companies that aren’t going anywhere for quite some time.

    I definitely like UPS long-term. I haven’t followed their stock, but on a dip, that would be great to stock up on.

  5. J.D. @ Get Rich Slowly says:

    I have to add that I am a huge Apple fanatic. I’m a fanboy. I have lots and lots of Apple equipment. I want them to succeed. But I want to buy into them when they’re low, not when they’re high.

    Trent, you’ve inspired a couple of entries from me here. I’ll try to get the first one up tomorrow or this weekend. (I’m very busy right now, so don’t know if I can do it.) It’ll be five stocks of my own to pit against the Simple Dollar Index. :) The second entry will be the tale of our ill-fated investment club.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>