Go With A Winner!
The Dynamic Wealth Report
August 20, 2010
by Corey Williams, Editor
The Dow first crossed 10,000 nearly eleven and a half years ago.
I remember watching CNBC as this historic event occurred. It was March
16, 1999. Traders on the floor of the New York Stock Exchange began
cheering and tossing homemade confetti. Everyone was celebrating the
markets historic moment.
I doubt they would have been so excited if they knew what the future
held.
More than eleven years later the Dow is still hovering around 10,000. A
far cry from “Dow 20,000 by 2006” some analysts were predicting at the
time.
Clearly a buy and hold strategy hasn’t worked out so well. The idea of
simply buying and holding a diversified portfolio is dead. You certainly
haven’t made any money that way over the past decade.
But that doesn’t mean holding individual stocks for the long run is a
bad idea. It just means you can’t buy broad indexes of stocks and expect
to hit a homerun.
I have a better solution…
Instead of focusing on index investments, look for individual companies
with long term potential. I have one stock in my sights. I’ll tell you
about it in a moment…
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But first, let’s explore what to look for in stocks for the long run.
You should start from the big picture and work down to company
specifics.
First you take a look at the macro trends. In other words, look for
catalysts driving future growth. The bigger the growth the better.
Just as importantly, those catalysts need to have staying power. You
don’t want some new technology or development to change the game.
For me, these two criteria eliminate all but a few sectors of the
economy. In fact, there are only three sectors making the cut in my book.
Energy, Agriculture, and Health Care.
These sectors all have strong long term demand drivers. Everything from
population trends to the evolution of emerging markets are driving
growth in these sectors.
And new technologies or developments aren’t likely to change the game.
Products produced by these industries are hard to replace. (I can’t
imagine technology replacing my ham sandwich.)
Once you’ve identified an industry or two, it’s time to dig down on
individual stocks.
It doesn’t need to be difficult. Start with world-class companies with a
proven track record.
In the energy industry, one company fits this bill perfectly, Schlumberger (SLB).
SLB is a global oilfield and information services company. For more than
80 years, they’ve been at the forefront of the oil and gas exploration
and production industry. They’ve grown into a world-class organization,
building on their expertise and innovative technology.
And their future looks as bright as ever.
Demand for oil and gas continues to grow. The population trends in
emerging markets like China and India alone will be a catalyst for
decades to come. And the depletion of existing wells will only
accelerate, creating the need to find new wells.
Of course, well productivity and safety are key to the industry’s
future. And SLB is at the head of the class when it comes to improving
safety in offshore drilling.
SLB has a strong balance (more than $3 billion in cash), growing
earnings, and solid dividend growth. It’s everything you should look for
in a stock to hold for the long run.
In short, buying and holding a broad index of stocks is a thing of the
past. But you can still buy and hold stocks of rock solid companies in
essential and growing industries.
•
Trina Solar (TSL) was
upgraded by Barclays Capital this week. They now have an overweight
rating and a $12 price target on the stock. They recently signed a deal
to provide solar modules to SunEdison.
• Boyd Gaming (BYD) was downgraded to sell by
Argus this week. The casino operator saw their earnings tumble 16% last
quarter.
• Morgan Joseph started coverage on Sanderson Farms
(SAFM) this week with a buy rating. The analyst said their business
model should lead to higher profit margins than their competitors.
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