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The Best Stocks to Own (Hint: They Are Not the Most Widely Held)

Why should that surprise anybody? When I turn on the major financial networks, I hear the same stocks being talked about over and over again. When I read most of the big publications that follow the markets, I see those same stocks yet again. What is wrong with the big widely held names you ask?

Let me answer that question with some pictures, because pictures speak a thousand words:

All data from Best Stocks Now App

If I have made you squirm a bit, then I am doing my job so far. I want for you to focus for just a minute on the PERFORMANCE of these stocks over the last 1, 3, 5, and 10 years. I also want you to look at the RELATIVE PERFORMANCE grade of these stocks when I compare them against the other 2,800 or so stocks that I follow.

You may be thinking: "But these are big well-known American icons that aren't going away like some of the lesser known stocks out there, they are safe." Note that GE and Merck severely underperformed the market during the extreme duress that the market was under in 2008, you call that safe?

Now let's look at some pretty pictures that we can contrast with the not so pretty ones with:

Wow, what a difference! The best stocks in the market are generally just under the radar. They should not be, but for some reason they are.

When I start telling folks that some of the great stocks of our day are Dollar Tree (DLTR - Get Report), Autozone (AZO), Terra Nitrogen (TNH), Ross Stores (ROST), Family Dollar (FDO - Get Report), Monster Beverage (MNST), Tractor Supply (TSCO), etc., etc., etc., unlike the Great Karnak, they scratch their heads and say, "I didn't know that! Why don't I own any of these stocks?" Sometimes they start getting really agitated and start wondering why they own all of the usual suspects instead. They feel like they have been duped.

You see, companies have life-cycles. They usually start out as a great idea by a few entrepreneurs like Steve Jobs and Steve Wozniak. They begin their life as private companies. The entrepreneurs next invite investors in, while the company is still private. These are the investors that take the greatest risk, but stand to reap the greatest reward if the idea works out.

If it is a good idea, the company will file for an initial public offering and only a select few will get in at the offering price. These folks also stand to reap an outsized reward. On IPO day, many get caught up in the frenzy and buy way above the offering price. This is rarely a wise thing to do.

The company is now a publically traded company and enters into the realm of the retail investor. It now has to prove to investors that they can grow their sales and earnings at a steady clip, thereby increasing the value of the company to the shareholders. Some do very well at this, many do not. If you are a growth investor, you want to own the very best ones, when they are still in their prime.

The best ones can go through several years of phenomenal growth as the stock goes from a small-cap, to a mid-cap, to a large-cap, and even sometimes to a mega-cap. Cisco would be a good example of this. Unfortunately, all good things must eventually come to an end and mathematics begins to catch up with the company. High double-digit percentage quarter-over-quarter increases in earnings are no longer possible. Consider that Cisco has only been growing its earnings by 5% per year over the last five years.

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SYM TRADE IT LAST %CHG
CSCO $29.35 0.14%
DLTR $76.19 -0.20%
FDO $77.92 -0.05%
GE $27.63 0.40%
PII $144.86 -0.09%

Markets

DOW 18,126.12 -36.87 -0.20%
S&P 500 2,120.79 -2.69 -0.13%
NASDAQ 5,097.9760 -8.6170 -0.17%

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