It might be a bit old-fashioned, but from time to time finding good investment ideas is really all about businesses that are working right in your own backyard. Popularized by Peter Lynch of Fidelity Magellan fame, investing in what you know can help you identify stocks that are undervalued and potentially very profitable.
In this crazy world, I’m going to take Lynch’s philosophy and apply it to stocks of companies that offer convenience. A corollary to this theme is to include convenience at a discount. As the world economies struggle in the current environment, businesses offering real value in the form of easy access and low price are likely to do well no matter what the stock market does.
I’ve identified 10 stocks that I think would be appropriate for any portfolio looking to capitalize on this simple, and likely effective, idea of investing in what you know:
I love this corner drugstore. Over the last few years, Walgreen (NYSE:WAG) has been quietly implementing an expansion plan. I see new locations going up in several neighborhoods in my community. The coffee shop where I do much of my writing is next to a Walgreens. The place is always packed and does brisk business. How can you not like the specials they offer from time to time? I find myself stopping in to buy two Red Baron Pizzas for $6 whenever my freezer is empty. This is a company offering convenience that I know and like. I would buy the stock too.
If you are looking for bargain prices, bulk discount retailer Costco (NASDAQ:COST) is the place to go. For families with kids or packrats who love to stock up on household goods, there is no more convenient place to shop than Costco. The membership-only platform might be a turnoff to some, but the bargains more than make up for the annual fee to join. Shares of Costco are one of few stocks to be trading higher this year. It is no coincidence that such performance comes at a time of great economic challenge. I expect the outperformance trend to continue for many years. Costco is a convenience stock to own.
This newly minted publicly traded company is all about convenience. Zipcar (NASDAQ:ZIP), which rents cars on an hourly basis to busy customers in heavily populated urban cores, has a business model that is likely to succeed for many years to come. If you like the product, buy the stock. The added benefit of this approach, in light of the energy crisis, is that fewer cars end up on the road. Use it when you need it will be the wave of the future. Like many IPOs, Zipcar was off to the races right out of the gate. In the trading days that followed, shares settled lower as investors fretted about competition from giant rental car companies. Use the fear and discount to acquire shares of Zipcar today.
The stock market correction this summer should make it perfectly clear that any investor looking for gains needs to trade stocks and to do so frequently. Buy-and-hold investing is like the vampire that never dies. Well, I’m going to put a stake through its heart and declare traders the victors. Once the rest of the world catches on, trading stocks will become the norm. All that volume is going to be a windfall for discount stockbroker TD Ameritrade (NASDAQ:AMTD). The knee-jerk reaction is that a bear market will hurt TD as investors simply move to the sidelines. Traders know better. They are making a killing on the volatility. Buy-and-hold investors, not so much. TD Ameritrade is cheap and convenient. Buy the stock as trading explodes.
Fast food defines convenience in the restaurant category and the king of fast-food restaurants is McDonald’s (NYSE:MCD). There is no secret here. Investors should be very familiar with the Golden Arches. The company has been reinvigorated by the recession and the economy’s tepid recovery. Family budgets are tight and McDonald’s can feed a family of four quite cheaply. In addition, the company went toe to toe with expensive gourmet coffee and, surprisingly, won the battle. Its quality product is cheap and convenient – you can buy a cup at the drive-through window. The stock is a winner too, paying a solid dividend and likely to grow irrespective of tough times in the economy. I would buy the stock.