R&D Is KeyThe most reliable indicator is a company's spending on research and development. R&D represents a company's internal projections of its future opportunities. Companies that see big future markets up for grabs tend to spend more on developing products that can capture those markets. Companies that increase their spending, especially when times are tough, have the kind of aggressiveness that's needed to win it all. Not that R&D numbers are easy to use. They're unfamiliar to most investors because they aren't widely or prominently reported. And unless they're put in context, they're worse than useless. Just knowing how much a specific company spent on R&D or even the recent trend in R&D spending at a company can be misleading in isolation, making companies look weaker or stronger than they are. Let's start by developing six rules that will help us use R&D spending to find winner-take-all stocks. When we're done, the rules, in turn, will lead to a list of five potential candidates for my portfolio.
My Five Candidates to BuyFrom the companies I've mentioned here, I'd put these as potential candidates to buy:
- Johnson & Johnson
- Applied Films
- Avid Technology
Please note that due to factors including low-market capitalization and/or insufficient public float, we consider Applied Films to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.