2018 is a heady time to be involved in the stock market. Over the past five years, the Dow Jones Industrial Average, the S&P 500, and the NASDAQ indexes have doubled in value. Look back to the bottom of the Great Recession and one will see that stock values have quadrupled.
Yet, the best traders have managed to crush these unwieldy numbers. Eminently skilled in picking stocks, their biggest wins have helped them beat one of the most robust bull markets in history.
How do they do it? By embracing the teachings of gurus like Warren Buffett and Peter Lynch. They have amassed their fortunes by buying undervalued equities and holding them for the long-term.
Today’s article is part inspiration, part tutorial. We’ll start by profiling the best stocks of all time, then we’ll go over the basics of how to pick a value-priced stock.
The list bellow also contains the top 5 largest companies in the US.
Let’s jump to it, shall we?
Oracle Corporation (ORCL)
Despite not being around as long as other blue-chip companies, tech stocks have made a huge impact on the market. Oracle is among the oldest of the bunch, as this maker of database management software went public in 1986.
Like most tech stocks, it got caught up in the dot-com euphoria of the late 1990s. Cast aside by retail investors in the crash that followed, only those who saw the internet as the future (and not a fad) found it to be undervalued at $7 in September 2002.
These buyers were rewarded for their vision, as ORCL closed at $51 in September 2018, an all-time high.
JPMorgan Chase (JPM)
An iconic financial institution that has been around since 1799, JPMorgan Chase is the stud of the American financial industry.
Most banks are solid investments, as they post consistent profits year after year. JPMorgan Chase is as good as they come – in Q1 2009 when American banks collectively lost $10 billion, JPMorgan Chase managed to post a profit of $1.5 billion.
Despite this remarkable performance, their stock price took a 50% haircut from October 2008 to February 2009. Those able to keep their fears at bay and buy at $23 now hold a stock worth $115 in October 2018.
Pharma stocks are tricky to pick. All it takes is one recall to tank a price, and potentially, an entire company. Those who accepted these risks to purchase a piece of Merck years ago have been rewarded with a steady string of profits tied to the success of its life-changing drugs.
Treating everything from diabetes to HIV, MRK’s trend line has gone much higher than the average pharma stock. Despite swings typical of a pharmaceutical stock, those confident in its bedrock drugs offer have been rewarded for holding it long-term.
Sitting at $14 in 1994, Merck is now worth $71.23 as of its most recent close.
Who ever thought sugar water could take over the world? If founder John Pemberton could see his company today, we imagine this would be the first thought that would have come to his mind.
A tasty carbonated beverage derived from the kola nut, this pitch-black soft drink can now be found in almost every nation on Earth (except for Cuba and North Korea).
Founded in 1886, Coca-Cola began trading on Dow Jones in 1987 at around $2.50. Today, that investment is worth around $46 – more than enough to buy a few pops for one’s friends.
A leviathan of online commerce, Amazon was once little more than a paltry book seller. Many thought this company wouldn’t survive the fallout of the dot-com bust. They managed to hold on, and have since gone on to become the internet equivalent of Wal-Mart.
They recently moved into brick and mortar grocery, acquiring Whole Foods. This, combined with the meteoric rise of online shopping over the past decade, has sent AMZN into the stratosphere. Stuck in the $40 to $80/share range for much of the 2000s, its believers have profited massively in the 2010s.
This stock broke through the $2,000 ceiling in August 2018, with some experts saying it still has more room left to run.
Berkshire Hathaway (BRK.B)
Most people excel at only a small set of skills. Accordingly, most investors are terrible at stock picking. There’s beauty in keeping things simple. Why not leave the yeoman’s work of value investing to the experts?
It is this philosophy that investors in Berkshire Hathaway embrace. Headed up by two of the wisest investment gurus in the world (Warren Buffett and Charlie Munger), BRK.B has seen solid and steady growth over its 22-year existence.
Berkshire Hathaway issues two classes of stock. The A class became too expensive (it recently closed at $327,900/share) for most retail investors to afford, so in 1996, a cheaper B class was issued at $20/share.
Those who got in at that price have enjoyed steady gains, with recent closes above the $218 mark.
Founding the world’s most popular search engine was just the beginning for Google. As the world’s foremost broker of information and data, the future is filled with infinite possibilities for the corporation now known as Alphabet.
Once overlooked as a simple technology company, it turns out gathering data on just about every facet of online life is actually quite profitable. It allowed Alphabet to sell tailored ads to its customers – when a company’s message can get in front of those most likely to buy, magic happens.
In the 2010s, it took the wealth generated from revenues and its IPO to start/acquire a series of future-facing companies. From self-driving cars (Waymo) to intelligent appliances driven by the Internet of Things (Nest Labs), it is set to make astronomical profits in the years ahead.
Investors agree. Starting from $46 when its IPO was issued, Alphabet now sits at $1,177. In an age defined by technology and data, that climb is sure to continue.
No stranger to controversy in its pursuit of every day low prices, WalMart is the king of discount department stores. Around for longer than most realise, WMT was listed on the New York Stock Exchange for 1972 for $0.04/share.
Despite the occasional plunge after a disappointing earnings report, WalMart has enjoyed a steady rise in the market over the years. Hiking its dividend every year since 1974 has drawn in a steady stream of investors, helping its price to cross the $100 threshold in January 2018.
Though it faces headwinds from Amazon, WalMart has managed to keep up in the online space, investing heavily in its e-commerce infrastructure.
Giving people what they want has always been a sure route to profit. Apple turned that rule on its head by giving folks gadgets they didn’t know they needed (until they saw them).
Creating products out of thin air is a risky game. Fortunately, Steve Jobs had a knack for crafting innovative products – it was this gift that helped him birth one of the most successful companies in history.
As a publicly-traded stock, APPL has been through some gut-wrenching times. The mid-1990s was a scary time, as the company flirted with bankruptcy after a series of disastrous decisions.
The return of Steve Jobs righted the ship. Focusing on core competencies and developing new products like the iPod revived the company, but it was the iPhone that turned this corporation into a world-beater.
Ushering in the era of smartphones sent APPL on a hockey stick trajectory; those who bought in at $11.50 in the depths of the Great Recession now hold a stock worth over $200 in 2018.
For better or worse, oil & gas are the linchpin commodities of modern civilization. Our cars and trucks run on them. Plastics are made from them. Fertilizer is synthesized using them.
Accordingly, those who extract, refine, and distribute crude oil-derived products have accrued massive wealth over the last century. ExxonMobil leads them all, having made $1 trillion for its shareholders since the late 1960s.
Available at roughly $2/share during the oil price bust of the 1980s, those still holding today ($85) enjoyed a 42x increase in their investment.
What do all of these companies have in common?
For every dynamo in the stock market, there are duds that go break-even over the long-term. Worse, some companies, like Enron or Blockbuster, go bankrupt.
To cover bad bets, an investor needs big winners in their portfolio. To pick them, one must identify traits many rock star stocks have in common with each other.
Let’s discuss a few of them.
They provide an inelastic need
Modern society could not function without gasoline – ExxonMobil provides that. Many small towns depend on WalMart for anything that isn’t groceries. Businesses big and small wouldn’t be able to expand without loans from institutions like JPMorgan Chase.
Corporations that offer a product/service essential for everyday life tend to do well no matter the state of the economy.
They excel at innovation
Technological and scientific progress is advancing at a pace unprecedented in human history. Companies like Tesla, Alphabet, and Apple are leading the charge, providing people with products they didn’t know they needed – until they got their hands on them.
The iPhone seemed little more than a fun gadget – until people realised they could use it to look up directions, order food, and surf the internet from anywhere with a cell signal.
When companies ‘invent’ demand for something they created, the resulting stock gains can be astronomical.
They get in front of ‘waves’ so they can catch them
Some of the biggest business opportunities have their roots in societal trends and innovations. Amazon never really took off until online commerce did in the 2010s. The rise of the internet in the 1990s lived Oracle out of the doldrums.
As we speak, boomers are swelling the ranks of the retired like never before. Just a hunch, but now might be a good time to go looking for undervalued travel and health care companies.
Is it possible to pick superstar stocks before they get famous?
Let’s be honest – nearly everyone wishes they bought Amazon at $40 in the 2000s. The question that leads from this desire is an obvious one – are there signs one which indicates a possible juggernaut stock in waiting?
Everybody has a system to pedal. Most of these, however, focus on the ‘greater fool’ theory of investing – that by riding a wave of speculation, there is always a bigger sucker out there willing to buy.
In addition to keeping the commonalities of major stocks in mind, there is only one approach we can recommend – value investing.
It is not an easy path to follow, as it requires extensive research to determine a company’s true value. On top of this, investors must commit to holding stocks for the long haul.
Let’s discuss this approach in further detail.
2020: Stockpocalypse Now
The year is 2020. Investors finally realise how overbought the Dow Jones is, triggering a massive crash. The index falls 40%, taking down just about every blue-chip stock with it.
Some companies, like overextended real estate developers, get punished correctly in accordance with the lack of demand for their products.
However, the value of other stocks ends up getting distorted on the way down. Take Coca-Cola for example; its drinks sell well around the world, no matter the state of local economies. Does that mean it deserved to have its share price axed by 40% in our hypothetical sell-off? Unlikely.
In this instance, the intrinsic value of Coca-Cola, which includes sales, profits, and strength of its management team, exceeds its current share price. This makes it a buy.
Applying this logic to lesser-known stocks will help investors find plenty of solid buys for their portfolio. Of these, a few may end up becoming superstars.
However, not Warren Buffett, nor Jim Cramer, nor the fortune teller down the street can point at any one stock and proclaim confidently that it will sell for 40x its current price ten years from now.
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