You want to own the leaders – period. You want to focus your research on the top two or three companies in a leading industry. Now, the leader doesn't necessarily mean that the company is the biggest or the most common household name. Sometimes they are, sometimes they are not. The leaders are the companies with the best annual and quarterly earnings growth. These companies have a superior return on equity (ROE), superior sales growth, and superior pre-tax profit margins. Companies that display these types of fundamentals are typically taking market share. These are the companies that can and will charge a premium for their products and services. Own the best and avoid the cheapest. Avoid the sympathy or laggard company. Following "the boring kid" is tempting, but you must resist this temptation. The laggard will go up 20% for example, while the true leader will go up say 200%. Focus your time on the best. There are no "deals" in the stock market. There are no hidden gems. A laggard will be priced cheaper because it is an inferior company compared to the leader, which always seems too expensive. It is priced at a premium because it is the dominant player and this is typically born out in its price appreciation. Even if you are stuck in the "buy low P/E academic crowd," follow the leaders because they will help you determine what stage the over-all stock market is in. There is always information in stocks you don't own, you just have to look!
Happy Returns!
P. Franklin, Jr.
June 1st, 2017
All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.
Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.