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 invest 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.